Performance, Commentary & Portfolio
ISIN GB0005800072 | SEDOL 0580007
Fund Manager’s Review
As has become the norm, attention focused on American foreign policy during February, with tension rising in the Middle East and concerns ahead of a military intervention in Iran causing the oil price to rise. Airstrikes on Iranian positions, and retaliatory missile attacks across the Middle East, occurred on the last day of the month. The situation remains fluid at the time of writing.
The US Supreme Court overruled president Trump’s use of tariffs, but he immediately announced a reintroduction of tariffs under a different, time limited legal mechanism.
In the UK, the Bank of England held interest rates at 3.75%, but suggested a further cut in March was possible, in response to rising unemployment. In politics, the left-wing Green party won the highly contested Gorton and Denton by-election in Manchester, which had been a safe labour seat. The result underlines the unpopularity of the current Labour government, but also demonstrates the increasing division within society, with the rightwing Reform party also polling well.
Politics did not derail the UK stock market, which had a strong rally, rising well over 6%, although the share price moves were not uniform, with larger companies significantly outperforming medium sized stocks. US leading indices were down, especially the tech heavy Nasdaq Composite index, with European shares in between, posting modest positive returns.
Once again there was a wide dispersion of sector performances. The strongest large sectors included utilities, pharmaceuticals and aerospace & defence. The weakest sectors included software and media, where there were fears about artificial intelligence (AI) disruption to asset light businesses. Life insurance and investment banking & brokerage also underperformed.
Investment performance was positive, but lagged behind the very strong market return. Merchants’ Net Asset Value (NAV) total return was 5.05% compared to 6.47% from the benchmark, FTSE All-Share index. The biggest negative impact came from not owning AstraZeneca, which produced a double digit total return as it reported results, and lifted the overall market. Lloyds Bank shares fell modestly and the pharmaceutical company Hikma saw its shares retrench, on its final results, as it reduced guidance for next year’s profits. On the positive side, not owning NatWest helped relative performance, GSK rose by 16%, posting its first results under its new Chief Executive, and DCC also recovered by over 10%.
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"we are finding value in many medium and smaller sized companies that are below the radar of international investors" |
There was one new purchase in the portfolio. Bloomsbury is a publishing business, famous for the Harry Potter series, but also other highly successful authors like Sarah J Maas. It also has smaller academic publishing and digital resources businesses. Bloomsbury has an excellent long-term record of growth, using cash from successful publications to fund acquisitions and advances to new authors, whilst paying a steadily growing dividend. However, the business is lumpy, and after an exceptional 2024, which included the release of the last Sarah J Maas novel, profitability has come back somewhat, and the shares have fallen by over 30%. This type of volatility is normal for Bloomsbury, and we are confident about the future growth potential. But the share price drop provided us with the opportunity to buy into an exceptional smaller company at a very modest valuation.
Elsewhere, we carried out several trades to recycle money from strong performing shares like GSK, IG Group, Inchcape, Lloyds and SSE, into shares that had lagged the market and offered good value, including MONY group, Hikma, Entain and Energean.
Despite strong recent performance, there is little general enthusiasm for the UK stock market, and the aggregate valuation remains reasonable. The wide dispersion of sector and stock returns within the market has created many investment opportunities. In particular, we are finding value in many medium and smaller sized companies that are below the radar of international investors. We believe that buying these businesses, where they are trading at valuations well below their intrinsic value, should deliver a combination of strong capital returns and a high income stream, to meet Merchants’ objectives.
Simon Gergel
13 March 2026
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 |
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Launch Date |
16 February 1889 |
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AIC Sector |
UK Equity Income |
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Benchmark |
FTSE All-Share |
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Annual Management Charge |
0.35% |
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Performance Fee |
No |
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Ongoing Charges 1 |
0.56% |
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Year End |
31 January |
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Annual Financial Report |
Final published in April, Half-yearly published in September |
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AGM |
May |
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Dividend Pay Dates |
February/March, May, August, November |
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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 |
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Company No. |
00028276 |
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FATCA GIIN No. |
ZHLNUL.99999.SL.826 |
Codes |
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RIC |
MRCH.L |
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SEDOL |
0580007 |
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ISIN |
GB0005800072 |
Awards & Ratings
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 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 (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.