Performance, Commentary & Portfolio
ISIN GB0005800072 | SEDOL 0580007
Fund Manager’s Review
The UK Stock market continued its steady rally in December, with the market producing an impressive total return of around 24% for the calendar year, despite a sharp fall in April. The UK considerably outperformed the major US indices, when translated into a common currency, with the S&P 500 Index only up around 10% in sterling terms.
The Bank of England cut interest rates again, for the 6th time this cycle to 3.75%, down from its 2023-2024 peak of 5.25%. The 5-4 vote of the Monetary Policy Committee was close, but they cited falling inflation, subdued economic growth and building slack in the labour market. GDP growth was modestly negative in October, whilst CPI inflation fell back to 3.2% in November.
The stock market gained around 2% in the month, although leadership was narrow. There were large gains in the mining sector, on the back of strong copper and precious metal prices, whilst the banking sector continued to rally as investors focused on their strong cash generation and benign credit conditions. On the flipside, the beverages sector fell further, reflecting weak trading in the US spirits market in particular. The tobacco and oil & gas sectors were also negative.
Portfolio performance was slightly ahead of the index return. Merchants’ Net Asset Value (NAV) total return was 2.28% compared to 2.19% from the benchmark, FTSE All-Share index. IG Group rose strongly on a positive first half trading update, which provided further evidence that the business is returning to steady customer growth under the relatively new management team. The copper miner Atalaya continued to rally in a strong sector, and Man Group shares also rose on the back of gains in some of their key investment strategies. On the other hand, the distributor DCC underperformed, despite a large return of capital through a tender offer. Also, not owning HSBC and Rolls Royce held back relative performance as both stocks were strong and lifted the market index.
The Magnum Ice Cream Company demerged from Unilever, which now represents a modest position in the portfolio. Magnum is the clear world leader in ice cream as well as the biggest company in most of the large individual markets. It owns four of the top 5 global brands – Walls, Magnum, Ben & Jerrys and Cornetto. There are significant scale economies in the ice cream business due to the cost and complexity of distributing frozen products to a vast number of corner shops, supermarkets and other locations. Magnum owns around 3m freezer cabinets, significantly more than peers. The management team believe that being a standalone business, with a pure focus on ice cream, will enable the company to revitalise Magnum’s growth, after losing some market share in recent years.
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"On Jan 1st, the FTSE broke through the 10,000 level for the first time. There is nothing magical about this number, but it could improve sentiment towards the UK" |
There were no major changes to the portfolio in December, but we continued to build up the position in Hikma and added to Sodexo, Whitbread, Unite and a few other companies offering good value. These purchases were funded mostly by profit taking in GSK (Glaxo), IG, Serco and Atalaya.
The UK stock market rally of 2025 has gone almost unnoticed by most of the media. Attention has understandably been focused on modest domestic economic growth and uncertainty around the recent budget, as well as global issues, such as the war in Ukraine, President Trump’s trade policy and the rapid growth of AI. On Jan 1st,the FTSE broke through the 10,000 level for the first time. There is nothing magical about this number, but it could improve sentiment towards the UK.
Despite the strong rise in the UK market, it remains one of the cheapest major stock markets in the world. But the standout feature has been the underperformance of medium sized companies or mid-caps. As we mentioned last month, mid-caps have underperformed the top 100 stocks by over 10% this year, partly due to concerns about the domestic economy. That has created many opportunities in this part of the market. With interest rates and mortgage rates now coming down, and with the budget out of the way, we could start to see a pick-up in activity, particularly in the important housing industry. Any return of confidence could boost sentiment from overly depressed levels.
Simon Gergel
13 January 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.