Stock Stories brings you closer to the heart of our investment strategy. In these short videos, our investment team discuss interesting stocks and how they contribute to our objectives of delivering a high and rising income together with capital growth for our shareholders by investing in a diversified portfolio of well-established UK-listed companies.
In this short episode of ‘Stock Stories’, Product Specialist Stephanie Sutton discusses an investment decision that was made and is illustrative of the Trust’s strategy: IG Group. Stephanie shares her thoughts on how it aligns with the Trust's objectives of seeking to deliver a high and rising income together with capital growth.
-
I'm Stephanie Sutton, Product Specialist for The Merchants Trust. All investments come with risk. And when looking at potential investment in equities, it's very important to think about risk. For Merchants, we seek to mitigate some of this risk by focusing on good companies with strong balance sheets and the potential to pay attractive dividends, and also making sure we don't pay too much for them.
Sometimes companies can be undervalued despite operating in areas of high growth that are driven by powerful structural tailwinds. We believe that one such company is fintech provider IG Group. As a specialist in online trading and investments, it benefits from rising demand for self-directed investing as we see increasing wealth accumulation and wealth transfer. As the world's 'mass affluent' population grows, so does the demand for online investment and trading.
Digital technology allows people to trade whatever they want, whenever they want, wherever they are, and users IG's dealing platforms and apps can access around 19,000 global financial markets, including shares, currencies and also commodities. With operations in 19 countries across five continents, the company scales allows it to invest heavily in technology, giving its customers fast, flexible, and round-the-clock access to the world's financial markets.
The company derives most of its revenue from enabling its customers to trade, and to take a view on the direction of markets or assets. The business model is well hedged and is therefore relatively agnostic to the customer success. However, given its generating revenues from transaction fees and not trader losses, the business benefits more when customers do well. When the trades go well, they're more likely to continue trading and paying to use IG services.
Altogether, this is a highly cash generative business with a history of returning capital to shareholders through dividends. This coupled with strong fundamentals and a modest valuation, has led to IG Group being among the largest holdings of The Merchants Trust.
Although we are not making any recommendation here. IG is a great illustration of the type of company we like to have in our investment portfolio. A diverse portfolio of high quality, undervalued assets with strong dividend profiles and trading on modest valuations.
Disclaimers: Securities mentioned in this document are for illustrative purposes only and do not constitute a recommendation or solicitation to buy or sell any particular security. These securities will not necessarily be comprised in the portfolio by the time this document is disclosed or at any other subsequent date. Past performance does not predict future returns.