The Merchants Trust PLC – investing for long-term income growth
The Merchants Trust PLC aims to provide an above average level of income and one which increases over time. It was incorporated in 1889 and has assets in excess of £500m, making it the oldest and largest investment trust that we manage.
*Long-term debt plus net current assets/liabilities as % of capital NAV.
Aim
The Trust’s objective is to provide an above average level of income, income growth and long-term growth of capital through a policy of investing mainly in higher yielding UK FTSE 100 companies.
History
The Trust was incorporated in February 1889, making it the oldest of the investment trusts in the RCM stable. Initially it principally invested in the fixed interest securities of railway companies in the USA, Canada and South America, with the remainder held in Government securities and companies such as Castlemaine Brewery in Western Australia. The Trust now concentrates primarily upon major UK companies with an above average rate of dividend yield.
On 30th June 2006 a further 1,655,941 Ordinary shares were issued following the reconstruction and planned winding up of Allianz Dresdner Income Growth Investment Trust plc. The increase in assets was achieved at no cost to existing shareholders.
Risk & Features
Investment trusts are quoted companies listed on the London Stock Exchange. Their share prices are determined by factors including the balance of supply and demand in the market, which means that the shares may trade below (at a discount to) or above (at a premium to) the underlying net asset value.
Merchants 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.
(i) Share price source: Lipper, as at market close mid price.
(ii) A trust’s net asset value (NAV) 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 Merchants Trust PLC is incorporated in England and Wales. (Company registration no. 28276). Registered Office: 155 Bishopsgate, London, EC2M 3AD. The Company is a member of the Association of Investment Companies - Category: UK Growth & Income.
Manager's Review as at 30.07.2010
Stockmarkets generally performed well in July. The results of the European banking stress tests were published, with only 7 minor banks failing of the 91 banks tested. Economic news was mixed with generally positive developments in Europe in contrast to slightly softer indicators in the USA. The FTSE 100 index gained 7%, with BP bouncing 27% as their leaking Gulf of Mexico oil well was finally brought under control. There was a pro-cyclical mood in the market, with the banks, financials and several industrial and consumer sectors gaining whilst defensive areas like pharmaceuticals, tobacco and food producers lagged behind.
The portfolio's NAV returned 8.38% over the month. Positives included sharp rallies in the financials International Personal Finance and Aviva as well as the benefit of not owning BG or Imperial Tobacco which performed poorly. Negatives included large holdings in Glaxo and BAE which lagged behind the market as well as underweight positions in Lloyds and Barclays which were strong.
Investment activity largely involved profit taking after strong performance in stocks like IG Group, Meggitt, Britvic and two companies involved in takeover or merger discussions; Brit Insurance and International Power. We took advantage of the sell-off in Resolution during its rights issue to significantly increase the Trust's exposure, and in the process trimmed other life insurers Aviva and Legal & General, which had performed far better. Our investment strategy has not materially changed. We expect a period of below trend economic growth as governments address high debt levels. Whilst this will create challenges for businesses, many UK companies are trading at attractive valuations even taking into account this economic environment. We are particularly focused on large, multinational businesses with strong balance sheets, high dividend yields and resilient business models.
Trust Manager
Simon Gergel,
Director, UK Equity
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Simon joined RCM in April 2006 from HSBC Halbis Partners where he managed over £900m in high income funds as well as core institutional and life UK equity portfolios. Prior to joining HSBC in 2001, Simon worked for 14 years at Phillips & Drew Fund Management / UBS Asset Management where he was involved in all aspects of UK equity fund management, including research, portfolio management and account director roles. He graduated in 1987 from Cambridge University with an honours degree in mathematics and is an associate of the UK Society of Investment Professionals.
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The information contained herein including any expression of opinion is for information purposes only and is given on the understanding that it is not a recommendation and anyone who acts on it, or changes their opinion thereon, does so entirely at their own risk. The opinions expressed are based on information which we believe to be accurate and reliable, however, these opinions may change without notice.
(i) Share price source: Lipper, as at market close mid price.
(ii) A trust’s net asset value (NAV) 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 Merchants Trust PLC is incorporated in England and Wales. (Company registration no. 28276). Registered Office: 155 Bishopsgate, London, EC2M 3AD. The Company is a member of the Association of Investment Companies - Category: UK Growth & Income.
Source: RCM (UK) Ltd, all data as at 30.07.2010
(i) Share price source: Lipper, as at market close mid price.
(ii) A trust’s net asset value (NAV) 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 Merchants Trust PLC is incorporated in England and Wales. (Company registration no. 28276). Registered Office: 155 Bishopsgate, London, EC2M 3AD. The Company is a member of the Association of Investment Companies - Category: UK Growth & Income.
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(i) Share price source: Lipper, as at market close mid price.
(ii) A trust’s net asset value (NAV) 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 Merchants Trust PLC is incorporated in England and Wales. (Company registration no. 28276). Registered Office: 155 Bishopsgate, London, EC2M 3AD. The Company is a member of the Association of Investment Companies - Category: UK Growth & Income.
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