The Merchants Trust



Performance, Commentary & Portfolio

ISIN GB0005800072 | SEDOL 0580007

Fund Manager’s Review

In August, President Trump announced the latest round of tariffs on US trading partners, including a 35% tariff on Canada and 50% on India. Signs of slowing growth and labour force weakness in the USA led Federal Reserve Chair Powell to signal a likely cut to US interest rates at the next meeting in September. However, he also warned that inflationary pressures, partly induced by tariff increases, created a challenging situation. 10-year US bond yields rose in the early part of the month, but then reversed this after the Powell speech, to end broadly unchanged on the month.

In the UK, the Bank of England Monetary Policy Committee decided to cut interest rates by 0.25% to 4% in a 5-4 vote. However, the Committee raised its short-term inflation forecast, making further interest rate cuts this year less likely. Given the pressures on government finances, there was also considerable speculation about what tax increases the Chancellor, Rachel Reeves, will announce in the forthcoming budget. This combination of events weighed on the UK gilt market, with 10-year gilt yields rising to around 4.7%.

It wasn’t only the UK that suffered from budget uncertainty. In France, prime minister Bayrou announced a surprise vote of confidence in his government for 8th September, as his attempts to control public spending and axe two public holidays met significant resistance.

Major stock markets were relatively calm, with the main US indices up around 2% and the UK market up nearly 1%. Large UK companies outperformed mid-caps, as investors seemed concerned about UK budget pressures, which tend to have more impact on domestic, medium and smaller sized firms.

Within the UK market, the best performing large sectors were defensive areas like telecoms, pharmaceuticals and tobacco, with natural resources – oil and mining – also outperforming. Weaker sectors were mostly cyclical and domestic industries like house builders, construction, real estate and retail.

The Net Asset Value (NAV) total return was -0.20% compared to 0.92% from the benchmark, FTSE All-Share index. There were two specific events that benefitted the portfolio. At the beginning of the month, the Supreme court ruled in the long-standing dispute about bank commission payments for motor finance. The ruling removed the worst-case scenarios for how much the banks might have to pay in compensation, and provided some clarity on liabilities. This will now be followed up by the Financial Conduct Authority. In the real estate sector, Primary Health Properties (PHP) won the contested bidding process for its peer Assura, bringing together the two leading listed providers of GP surgeries and other healthcare property. We supported the PHP bid and the Assura shares were exchanged for new PHP shares.

"We are finding numerous cheap UK companies to invest in, especially among the medium sized businesses. These have been largely shunned by investors and many are offering compelling value, even allowing for subdued domestic growth in the short‑term"

Investment performance was a little behind the index, largely due to the portfolio exposure to industries like housing and real estate, where we see considerable value, but investors are generally cautious, as explained above. Not owning AstraZeneca also held back the relative return. On the positive side, the oil & gas company Harbour Energy and the copper miner Atalaya, both rallied, in strong resources sectors. Close Brothers was supported by the motor finance ruling, extending a strong recovery in the share price. Also, not owning the information services company RELX helped relative performance, as it fell back, on concerns about potential disruption from artificial intelligence.

We added a new holding in MONY Group, the company which owns the MoneySuperMarket and MoneySavingExpert websites, amongst others. MONY is one of four major UK groups offering price comparisons on insurance, financial services, energy and other services. The business has faced several headwinds in recent years, such as energy price caps, which have impacted growth and led to the shares being heavily de-rated. We believe the company is attractive, given potential future growth and efficiency opportunities. This is backed by a strong balance sheet, healthy cash generation and a 6% dividend yield.

Other activity included profit taking on shares that had been very strong performers, such as British American Tobacco, Barclays and Burberry. We used the proceeds to buy MONY Group as well as funding bigger positions in shares we believed offered excellent value, including three building related companies: Marshalls, Barratt Redrow and Grafton.

Looking forward, there is short-term uncertainty ahead of the budget. However the outlook for UK economic growth and the level of government debt are not out of line with other major economies. The government has a large majority, with no general election necessary for several years. Falling interest rates should gradually support the economy, for example by lowering mortgage costs. We are finding numerous cheap UK companies to invest in, especially among the medium sized businesses. These have been largely shunned by investors and many are offering compelling value, even allowing for subdued domestic growth in the short-term. We believe this portfolio has the potential to deliver a high dividend income stream and strong capital returns in line with Merchants objectives.

Simon Gergel
12 September 2025

This is no recommendation or solicitation to buy or sell any particular security. Any security mentioned above will not necessarily be comprised in the portfolio by the time this document is disclosed or at any other subsequent date.

Key Information

Launch Date

16 February 1889

AIC Sector

UK Equity Income

Benchmark

FTSE All-Share

Annual Management Charge

0.35%

Performance Fee

No

Ongoing Charges 1

0.56%

Year End

31 January

Annual Financial Report

Final published in April, Half-yearly published in September

AGM

May

Dividend Pay Dates

February/March, May, August, November

Dividend XD Dates

January, April, July, October

1. Source: AIC, as at the Trust’s Financial Year End (31.01.2023). Ongoing Charges (previously Total Expense Ratios) are published annually to show operational expenses, which include the annual management fee, incurred in the running of the company but excluding financing costs.

Registrations

Company No.

00028276

FATCA GIIN No.

ZHLNUL.99999.SL.826

Codes

RIC

MRCH.L

SEDOL

0580007

ISIN

GB0005800072

Awards & Ratings

>Shares Awards 2021 - Best Investment Trust for Income

Shares Awards 2021 - Best Investment Trust for Income: The Merchants Trust was recognised in 2021 by the readers of shares magazine. The award is voted for by readers and is not influenced by an industry panel, providing a validation of Merchants' investment strategy from individual investors in the trust.

RSMR logo

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.

Association of Investment Companies logo

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.

A ranking, a rating or an award provides no indicator of future performance and is not constant over time.

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