Portfolio & Performance

ISINGB0005800072
SEDOL0580007

Share Price is the price of a single ordinary share, as determined by the stock market. The share price above is the mid-market price at market close.
Share Price
552.0p


Net Asset Value (NAV) per Share is calculated as available shareholders’ funds divided by the number of shares in issue, with shareholders’ funds taken to be the net value of all the company’s assets after deducting liabilities. The NAV figure above is based on the fair/market value of the company’s long-term debt and preference shares (known as debt at market value). This allows for the valuation of long-term debt and preference shares at fair value or current market price, rather than at final repayment value (known as debt at par).
NAV per Share
545.0p


Premium/Discount. Since investment company shares are traded on a stock market, the share price that you get may be higher or lower than the NAV. The difference is known as a premium or discount.
Premium/-Discount
1.3%


Dividend Yield is calculated using the latest full year dividend divided by the current share price.
Dividend Yield
4.9%

Data source DataStream and Allianz Global Investors as at 21.10.2021 based on market close mid price.

Awards & Ratings

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RSMR Rating: The Merchants Trust has been awarded RSMR’s ‘R’ rating, widely recognised as a mark of quality for funds, ranges and investment trusts that receive this seal of approval. The RSMR research process results in a list of investment trusts which are the trusts that RSMR feel have a robust, repeatable process and the ability to deliver strong performance in the future.
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Association of Investment Companies (AIC) Shareholder Communication Awards 2021: The Merchants Trust won the award for ‘Best Report and Accounts – Generalist’. The judges praised the winning entry for the quality of its case studies and investment report, its use of language that was easy to understand, and the level of detail provided on the portfolio.
The RSMR rating is designed for use by professional advisers and intermediaries as part of their advice process. This rating is not a recommendation to buy. If you need further information or are in doubt then you should consult a professional adviser.
Association of Investment Companies (AIC) Shareholder Communication Awards 2021: The Merchants Trust won the award for ‘Best Report and Accounts – Generalist’. The judges praised the winning entry for the quality of its case studies and investment report, its use of language that was easy to understand, and the level of detail provided on the portfolio.

Portfolio

The data shown is not constant over time and the allocation may change in the future. Totals may not sum to 100.0% due to rounding. All data source Allianz Global Investors unless otherwise stated.

Top 10 Holdings (%)

GlaxoSmithKline
4.9
British American Tobacco
4.5
Imperial Brands
4.2
Royal Dutch Shell - B Shares
4.0
BP
3.8
BAE Systems
3.4
Scottish & Southern Energy
3.4
WPP
3.3
Legal & General
3.2
Vodafone
3.1

Data as of 30.09.2021

Geographic Breakdown (%)

UK 94.6
Europe ex UK 5.5

Data as of 30.09.2021. Excludes Cash

Sector Breakdown (%)

Financials
21.7
Consumer Staples
15.0
Consumer Discretionary
14.4
Industrials
14.2
Energy
10.8
Utilities
9.1
Health Care
6.3
Communication Services
3.1
Materials
2.1
Real Estate
1.5
Cash
1.8

Data as of 30.09.2021. Excludes Cash

Market Cap Breakdown (%)

FTSE 100 61.4
FTSE 250 23.8
Small Cap 7.6
Other 5.4
Cash 1.8

Data as of 30.09.2021

Fund Manager Comments

September seemed to bring an autumnal feel to the UK. Not so much the change in the weather, as surging energy prices, causing the collapse of several energy suppliers, and fuel shortages at petrol stations, caused by a shortage of lorry drivers, which exacerbated logistical problems and lengthening supply chains across many industries. These factors, on top of other inflationary pressures, threaten the pace of profits recovery and growth into 2022. However, this should be seen in the context of a domestic economy that has been growing fast, with second quarter economic growth revised upwards to 5.5% at the end of the month, record low interest rates, high consumer savings and increasing government spending on infrastructure.

The stock market also reflected a change in the seasons, with a small decline over the month, but a notable change in leadership. Energy was the stand-out performer, with both BP and Shell up by around 15%, on the back of firm energy prices. There were modest gains in travel & leisure, aerospace & defence and banks, but most sectors produced negative returns. Amongst the worst performing industries were construction, housebuilding, real estate and mining, which was impacted by a sharp fall in the price of iron ore.

The portfolio performance was modestly ahead of the broader market, reflected in a NAV total return for the month of -0.87% versus the -0.96% from the benchmark index. Biomass and hydro generator Drax benefitted from higher electricity prices, whilst positioning in the energy sector was also positive and SThree continued to perform well. On the other hand, not owning pharmaceutical company AstraZeneca and miner Glencore were detractors from relative performance as both shares performed well, with AstraZeneca buoyed by positive drug trial results. Elsewhere IG Group shares underperformed, despite solid first quarter results.

We made a new investment in Homeserve during the month. This company offers various heating, plumbing and electrical insurance and repair services to homeowners in the UK, US and certain European countries, as well as owning the online services directory Checkatrade in the UK and similar businesses overseas. It has a strong growth track record, over many years, with a particularly successful and market leading US business. The shares have fallen back in the last year on the back of disruption to Checkatrade’s growth from the pandemic, and some other specific issues, such as the decision to cancel and write-off a new IT system. This brought the valuation down to a level which, in our view, did not reflect the growth prospects or quality of the business. Elsewhere, we continued to build the position in Drax early in the month, and also added to household products company PZ Cussons after a reassuring trading update.

The largest sales were the two companies that received recommended takeover bids in August. We sold out of Meggitt completely and sold approximately half of the holding in Stock Spirits, both at prices above the agreed takeover bids. We also sold the remaining position in Inchcape after the shares had more than doubled from their 2020 low point, and the valuation had reached our assessment of fair value. In addition to the benefit from realising gains in these shares, the recycling of capital into new investments also helps the Merchants’ income generation. Despite Meggitt and Inchcape both suspending dividends during the pandemic, we held onto the shares, and indeed added to the positions, believing that they offered considerable upside potential. Selling these companies at fair prices, along with Stock Spirits, provides funds to invest in higher yielding shares.

As we touched on above, the outlook for company profitability is subject to contrasting forces. Order growth in many industries is robust or even strong, benefitting from pent up demand, high consumer savings and low interest rates. Yet cost pressures are building, and many companies are suffering from logistical challenges. We expect to see greater differentiation between company performance in the coming months, with operational resilience and the ability to pass on cost increases to customers becoming increasingly important. We have constructed a portfolio of reasonably priced, but sound quality businesses, that we believe can perform well in the medium term, in order to deliver an income stream and capital returns in line with Merchants’ objectives.

Simon Gergel18 October 2021

We expect to see greater differentiation between company performance in the coming months, with operational resilience and the ability to pass on cost increases to customers becoming increasingly important

This is no recommendation or solicitation to buy or sell any particular security.

Performance

Performance (%)

Select period:

    Cumulative Returns (%)

    3M6M1Y3Y5Y
    Share Price6.012.269.827.467.7
    NAV (debt at fair value)7.411.766.125.455.9
    Benchmark2.28.027.99.530.0

    Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return to 30.09.2021.1

    Discrete 12 Month Returns to 30 September (%)

    2021 2020 2019 2018 2017
    Share Price69.8-26.62.29.819.9
    NAV (debt at fair value)66.1-22.9-2.16.816.4
    Benchmark27.9-16.62.75.912.1

    Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return as at 30.09.2021.1

    1Past performance is not a reliable indicator of future returns. You should not make any assumptions on the future on the basis of performance information. The value of an investment and the income from it can fall as well as rise as a result of market fluctuations and you may not get back the amount originally invested.This investment trust charges 65% of its annual management fee to the capital account and 35% to revenue. This could lead to a higher level of income but capital growth will be constrained as a result.

    Copyright 2021 © DataStream, a Thomson Reuters company. All rights reserved. DataStream shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

    © Allianz Global Investors GmbH 2021, Registered Office: Frankfurt am Main, Register: HRB 9340, Local court: Frankfurt am Main. All Rights Reserved. The Merchants Trust PLC is incorporated in England and Wales. (Company registration no. 28276). Registered Office: 199 Bishopsgate, London, EC2M 3TY. The Company is a member of the Association of Investment Companies - Category: UK Equity Income.