The Merchants Trust



Performance, Commentary & Portfolio

ISIN GB0005800072 | SEDOL 0580007

Fund Manager’s Review

Benjamin Franklin said, “It takes many good deeds to build a good reputation and only one bad one to lose it”. Whilst the United States’ position as having the world’s reserve currency and US Treasury Bills’ status as “risk free” assets have not yet been seriously undermined by the events of April, President Trump’s extraordinary tariff proposals and attempts to remove the chairman of the Federal Reserve, could do lasting damage to the US’s reputation.

Financial markets were, once again, driven by events in the US. On 2 April, the self-proclaimed “Liberation Day”, President Trump unveiled a range of swingeing tariffs on other countries’ goods, ranging from 10% to over 40%. This led to heightened anxiety amongst governments and companies and extreme volatility in financial markets. Frantic negotiations took place in the subsequent days and China responded with reciprocal tariffs in an escalating trade war. Under considerable pressure, especially from the US Treasury market, President Trump deferred many of the tariffs for up to 90 days and excluded certain goods pending trade discussions. However, JHHoChina and the US ended the month with reciprocal tariffs of well over 100%. President Trump also threatened to try to remove the chairman of the Federal Reserve Bank, as he was frustrated by interest rate policy. However, he later backed away from this threat.

Stock markets initially fell heavily, led by the US, with both the S&P 500 index and the technology heavy Nasdaq Composite, falling by around 20% from their peaks in February. Bonds were also volatile. However, there was an exceptional recovery later in April, as the 90 day pause meant the worst fears on tariffs receded. Over the whole month, the S&P index was down less than 1% and the Nasdaq was up nearly 1%, in US dollar terms, although the Dollar weakened by over 3% against the Pound and 5% against the Euro.

The UK stock market was broadly flat over the month, recovering from a very sharp drop in the first week. Medium sized companies outperformed the top 100 by over 3%, in a slight reversal of trends earlier in the year. UK Government bonds rose with gilt yields falling. Gilt yields are sensitive to inflation expectations which have come down. Tariffs could lead to lower economic growth in the UK and potentially lower inflation, if goods that are no longer imported in the US are diverted to the UK, supressing prices. April also saw a sharp drop in oil and gas prices which also lowers the inflationary risk.

"It is possible that recent events cause investors to reassess the relative attractions of the lowly priced UK stock market, compared to the US market, which has seen the bulk of equity inflows in recent years"

The best performing sectors in the UK stock market were those exposed to the domestic consumer and other beneficiaries of falling interest rates, including retail, house builders, utilities and real estate. The weakest sectors were more exposed to global trade, such as oil & gas and metals & mining. Pharmaceuticals were also weak on concerns about potential US drug pricing policy.

Portfolio performance was well ahead of the benchmark index. The Net Asset Value (NAV) total return was 2.92% compared to -0.25 % from the benchmark, FTSE All-Share index. A high allocation to medium sized companies was helpful along with stock selection gains, especially among companies exposed to the domestic consumer or falling interest rates. The largest individual contributor was B&M which reported a reassuring trading update against pessimistic market expectations. IG Group shares benefitted from heightened market volatility. Elsewhere, not owning AstraZeneca, HSBC and being underweight in Shell were also helpful for relative performance. There were fewer detractors to performance, but Harbour Energy was weak, as the whole energy sector responded to falling commodity prices. Man Group shares also fell, as disappointing fund performance outweighed positive fund flows. Not owning BAE Systems and 3i also held back performance.

We added one new company to the portfolio, Serco and sold two others, Imperial Brands and Next plc Serco, a leading provider of outsourcing services to governments in the UK, Europe, the US and Australia, in particular. Serco operates largely in the areas of justice, immigration and defence. Serco have a good record of improving profitability in recent years, after fundamentally restructuring its business around a decade ago. It benefits from structural themes of cash strapped governments looking for efficiencies and technology improvements via outsourcing and growing defence budgets, with defence soon to represent around half of profits. The shares were modestly valued and we did not think they reflected Serco’s growth prospects or its growing US exposure, where profitability is higher.

The two sales were both examples of companies that had performed well and reached fair value, prompting us to sell to finance better opportunities. Since we started buying Imperial Brands seven years ago it has produced a total return of over 90%, mostly from dividends, compared to around 33% on the FTSE All-Share Index. Many of the shares were actually bought at much lower prices, from where returns have been considerably higher. Strong operational performance and a substantial re-rating took the valuation to fair value, for a business that still has structural pressures in the long term.

Next plc is an exceptional UK retailer, with a leading position in online sales for their own, and third party, brands. Since coming out of the Covid pandemic, Next has delivered strong growth in the online business and developed additional services for third party brands, adding new revenue streams. This has led to a significant re-rating in the shares. Although we see a positive growth trajectory for the business, we have sold the shares on valuation grounds.

We remain excited about the opportunities we see in the UK equity market, which has been under pressure for several years. It is possible that recent events cause investors to reassess the relative attractions of the lowly priced UK stock market, compared to the US market, which has seen the bulk of equity inflows in recent years.


Simon Gergel

20 May 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.

Subscribe to receive monthly factsheets & news

Sign up here

For more information on our products and services.

Contact Us

Allianz Global Investors

You are now leaving the Allianz Global Investors’ website and being redirected to

Welcome to The Merchants Trust

Select Role
  • Individual and professional investors
  • Warning to Shareholders

    We are aware that some shareholders may have received unsolicited telephone calls or correspondence concerning investment matters. These are typically from overseas based organisations who target UK shareholders offering to sell them, what often turn out to be, worthless or high risk shares in US or UK investments. They can be extremely persistent and persuasive. Shareholders are therefore advised to be very wary of any unsolicited advice or offers.

    Please note that it is most unlikely that either the company or the company’s Registrar, Link Asset Services, would make unsolicited telephone calls to shareholders. Any such calls would only ever relate to official documentation already circulated to shareholders and never in respect of investment ‘advice’.

    If you are in any doubt about the veracity of an unsolicited telephone call, please call the Company Secretary +44 (0)800 389 4696 or the Registrar on +44 (0) 371 664 0300.

    You can also report and get advice about fraud or cyber crime by contacting Action Fraud – National Fraud & Cyber Crime Reporting Centre 0300 123 2040 and visiting their website at www.actionfraud.police.uk.


    Please read this important information before proceeding further. It contains legal and regulatory notices relevant to the information contained on this website. By pressing ‘Confirm’ you agree that you have read and understood the following information.

    Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors may not get back the full amount invested.

    Please note that the products referred to on this website are only available to persons normally resident for tax purposes in the United Kingdom of Great Britain and Northern Ireland. Allianz Global Investors UK Limited has taken reasonable care to ensure the accuracy of information available through the site. However, the information may be amended at any time by Allianz Global Investors UK Limited without notice. As far as it is permitted under the Financial Services Act, Allianz Global Investors UK Limited does not accept liability for any loss, direct or indirect owing to reliance on any information contained herein. Opinions expressed whether in general or both on the performance of individual funds and in a wider economic context represent the views of the contributor at the time of preparation. They are subject to change and should not be interpreted as investment advice which Allianz Global Investors UK Limited is not authorised to give. If you are unsure of the suitability of any investment contained in this website, please contact a Financial Adviser. This site may provide links to third party websites over which Allianz Global Investors UK Limited has no control. These links are provided for your convenience and Allianz Global Investors UK Limited accepts no responsibility for the content of such websites. For your security we may record or randomly monitor all telephone calls.

    Regulation and Status Disclosure

    Allianz Global Investors represents products and services of Allianz Global Investors UK Limited. Allianz Global Investors UK Limited is an investment company incorporated in the United Kingdom, with its registered office at 199 Bishopsgate, London, EC2M 3TY. 

    Allianz Global Investors UK Limited, company number 11516839, is authorised and regulated by the Financial Conduct Authority.  Details about the extent of our regulation are available from us on request and on the Financial Conduct Authority's website (www.fca.org.uk). The duplication, publication or transmission of the contents, irrespective of the form, is not permitted; except for the case of explicit permission by Allianz Global Investors UK Limited.

    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.

    Please note that the important information set out here does not exclude or restrict any duty or liability to customers of Allianz Global Investors UK Limited under the Financial Services and Markets Act 2000 or under the Financial Conduct Authority Rules.

    Investments

    You should always bear in mind that:

    Past performance does not predict future returns.

    The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. You should not make any assumptions about the future on the basis of this information.

    Changes in rates of exchange may cause the value of investments and the income from them to go down or up.

    In a building society your money is secure, whereas in a stock market-based investment it is exposed to a degree of risk and the value of your investment will fluctuate up and down.

    The Merchants Trust PLC is a quoted company listed on the London Stock Exchange. Its share prices are determined by factors including demand which means that the shares may trade below (at a discount) or above (at a premium to) the underlying net asset value.

    The Trust seeks to enhance returns for its shareholders through gearing, in the form of long-term, fixed rate debentures. Gearing can boost the Trust’s returns when investments perform well, though losses can be magnified when investments lose value. You should be aware that this Trust may be subject to sudden and large falls in value and you could suffer substantial capital loss.

    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. Your capital could also decrease if income paid out of capital exceeds the growth rate of the Trust. Derivatives are used to manage the trust efficiently.

    The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable at the time of publication.

    A person within Allianz Global Investors UK Limited, its affiliates and their directors may or may not have a position in or with respect to any investments mentioned on this website.

    If you are in any doubt about the information contained on this website please call us on 0800 389 4696 and speak to one of our trained helpline staff or consult a professional financial adviser.

    The material contained in this website is directed only at persons or entities in any jurisdiction or country where such access to information contained herein and use thereof is not contrary to local law or regulation. Accordingly, all persons who access this website are required to inform themselves of and to comply with any such restrictions.

    Advice

    Allianz Global Investors UK Limited only provides information on our own and other group company products and does not give advice to retail customers based on individual circumstances. Please contact a financial adviser if you need advice.

    No Reliance

    Although Allianz Global Investors UK Limited has taken all reasonable care that the information contained within the website is accurate at the time of the publication, no representation or warranty (including liability towards third parties), expressed or implied, is made as to its accuracy, reliability or completeness by Allianz Global Investors UK Limited or its contractual partners. Information, opinions and estimates and any other contents on this website are provided by Allianz Global Investors UK Limited for personal use and informational purposes only and are subject to change without notice. Nothing contained on the website constitutes investment, legal, tax or other advice nor is to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision.

    No Warranty

    The information and opinions contained on the website are provided without any warranty of any kind, either expressed or implied, to the fullest extent permissible pursuant to applicable law. Allianz Global Investors UK Limited further assumes no responsibility for, and makes no warranties that, functions contained on the website will be uninterrupted or error-free, that defects will be corrected, or that the website or the servers that make it available will be free of viruses or other harmful components.

    Liability Waiver

    Under no circumstances, including, but not limited to, negligence, shall Allianz Global Investors UK Limited be liable for any special or consequential damages that result from the access or use of, or the inability to access or use, the materials at the website.

    Cookies

    A 'cookie' is a piece of information that is saved to your PC by the web server. Confirmation of reading this disclaimer will place a cookie on your PC and it will ease your navigation around the web site by not popping up this disclaimer again during this browser session. This cookie is temporary and will be removed when you close your browser. The cookie is not used for any other reason on this site.

    Linked Sites

    Some pages on this website contain information maintained by third parties. Although the information is believed to be reliable, Allianz Global Investors Limited does not guarantee the timeliness, accuracy or suitability of such information in any way and anyone who acts on the information does so entirely at their own risk. Allianz Global Investors UK Limited is not responsible for the content of any links to off-site pages, nor is it responsible for any websites that may contain links to this website. Any such website will not have been reviewed by Allianz Global Investors UK Limited and Allianz Global Investors UK Limited shall not be liable for any loss or damage arising from your reliance upon information therein. Following links to any off-site pages or other websites shall be entirely at your own risk.

    Copyright

    Copyright in this website is owned by Allianz Global Investors UK Limited. The copyrights of third parties are reserved. You may download or print a hard copy of individual pages and/or sections of the website, provided that you do not remove any copyright or other proprietary notices. Any downloading or other copying from the website will not transfer title to any software or material to you. You may not reproduce (in whole or part), transmit (by electronic means or otherwise), modify, link or use for any public or commercial purpose the website without the prior permission of Allianz Global Investors UK Limited.

    Nothing at the website shall be construed as granting any license or right to use any image, trademark, service mark or logo. Allianz Global Investors UK Limited reserves all rights with respect to copyright and trademarks ownership of all material at the website, and will enforce such rights to the full extent of applicable law.

    Money Laundering

    Any transaction involving client money will be covered by statutory and other requirements relating to money laundering including the Money Laundering Regulations, the Financial Conduct Authority rules and the Joint Money Laundering Steering Group Guidance Notes, as amended from time to time (jointly "the Money Laundering Requirements").

Please check the checkbox to accept the terms and conditions.