Why Merchants?
Established in 1889, The Merchants Trust PLC has, throughout its history, provided shareholders with an opportunity to benefit from investment in a diversified portfolio of leading companies with strong balance sheets and the potential to pay attractive dividends.
Merchants aims to provide its investors with an efficient, competitive and cost-effective way to achieve an above average level of income and income growth together with long term capital growth through a policy of investing mainly in higher yielding large UK companies. The company’s investment performance is benchmarked against the FTSE All-Share Index, reflecting the emphasis within the Merchants portfolio.
Why Invest?
Through Merchants, investors can access a portfolio of large UK companies that aims to provide strong long-term total returns as well as a high and rising income. Managed since 2006 by Chief Investment Officer of UK Equities, Simon Gergel, the Trust favours companies with strong cash flows and good fundamentals with a valuation below the team’s assessment of their intrinsic worth.
Why Investment Trusts?
The Merchants Trust PLC (Merchants) is an independent company listed on the London Stock Exchange whose investment trust structure provides access to a diversified portfolio of leading UK companies.
Investment trusts own shares in a variety of different companies. So buying shares in Merchants will effectively give you a diversified portfolio of UK companies, but with international exposure since many of Merchants’ investments derive the majority of their earnings abroad. This spreads your risk, as you are not reliant on the success of just one or two companies. And buying shares in an investment trust can be less costly than purchasing the underlying stocks individually.
Merchants’ investment manager is accountable to the Trust’s board of directors. The board is completely autonomous and ensures that the interests of shareholders are looked after. The Merchants board of directors aims to provide investors with the reassurance of a diligent environment of checks and balances; they also provide the Trust with invaluable knowledge and economic insight, as well as having the final say on deciding on the dividends to be paid to shareholders.
Risks & Features
The company’s policy is to remain substantially fully invested. The company has the facility to gear – borrow money – with the objective of enhancing future returns. Historically, the gearing has been in the form of long term, fixed-rate debentures. The board monitors the level of gearing and makes decisions on the appropriate action based on the advice of the manager and the future prospects of the company’s portfolio.
The company’s authorised borrowing powers set out in the Articles state that the company’s borrowings may not exceed its called up share capital and reserves. The board’s policy is to maintain gearing (borrowings as a percentage of net assets) in the range of 10-25% (at the time of investment).
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. Derivatives are used to manage the trust efficiently.
Learning about Investment Trusts
If you’re new to investment trusts, explore below and in the Education Centre to learn more about how investment trusts work.
