Performance, Commentary & Portfolio
ISIN GB0005800072 | SEDOL 0580007
Fund Manager’s Review
In the US elections on 5 November, Donald Trump won a decisive victory in the presidential race, with his Republican party also winning both houses of Congress. The US equity market rallied strongly, on enthusiasm that a second Trump presidency may be positive for economic growth and investment markets. The rally probably also reflected relief, at an end to uncertainty and a clear, uncontested result. The S&P 500 Index and the Nasdaq Composite Index both gained around 6%. US bonds initially sold off, on fears of higher inflation, which could follow any imposition of tariffs, but this weakness reversed by the end of the month.
The UK stock market was more muted, rising by a little over 2%, with Europe’s Eurostoxx 600 Index up around 1%. Within the UK market, there were mixed sector trends. Among the larger industry groups, the best performers included the defensive tobacco sector and the more cyclical travel & leisure and investment banking sectors. The weakest sectors included housebuilders and retailers, on generally more subdued economic newsflow, but also pharmaceuticals.
The Net Asset Value (NAV) total return was 1.84% compared to 2.49% from the benchmark, FTSE All-Share Index. Investment performance was modestly behind the index, with some large individual movers in both directions. DCC is one of the top 10 holdings in the portfolio. The company announced a significant change in strategy; to focus on the energy business, sell the healthcare business and consider options for the technology business. This was welcomed by the stock market, with the shares trading well below the sum of the parts in most brokers’ models. DCC shares rose by 18%. Other strong performers included the automotive engineering group Dowlais, which moved up by 20%, as its industry peer TI Fluids was bid for. The reinsurer SCOR continued its strong recovery, helped by third quarter results. Relative performance also benefitted from not owning AstraZeneca, as the company’s leading executive in China was detained by the authorities, investigating certain alleged behaviours by the company.
|
"We continue to see excellent value in many UKlisted businesses, and we remain excited about the opportunities to generate income and capital growth" |
On the negative side, Pets at Home shares fell by over 20%, as it reported slightly disappointing trading in its retail operation, although the valuable veterinary business continued to grow rapidly and generate strong cash flows. We believed this to be an over-reaction by the stock market, and we added to the holding. Bellway shares were weak, in a subdued housebuilding sector, whilst not owning the venture capital business 3i held back performance, as those shares rallied and lifted the index.
We sold out of the small position in US-listed Quanex Building Products, which had been received as part of the consideration in the Tyman takeover bid. Although we could see long term upside in that company, we preferred to reinvest the proceeds among the many UK-listed companies where can see considerable upside. These included Pets at Home, as mentioned above, Dowlais, Grafton and Close Brothers. We also reduced the large positions in Barclays, DCC and Drax, which had performed well, in line with our usual portfolio construction discipline.
Although the UK stock market has performed reasonably this year, it has moved broadly sideways over the last six months, whist the US market has continued to rally. This sideways move comes, despite an ending to political uncertainty in the UK and against a background of numerous takeover bids for UK companies and a high level of share buy-backs, all of which should support the market. We continue to see excellent value in many UK-listed businesses, and we remain excited about the opportunities to generate income and capital growth from the portfolio, in line with Merchants’ objectives.
Simon Gergel
12 December 2024
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 |
|
|
Launch Date |
16 February 1889 |
|
AIC Sector |
UK Equity Income |
|
Benchmark |
FTSE All-Share |
|
Annual Management Charge |
0.35% |
|
Performance Fee |
No |
|
Ongoing Charges 1 |
0.56% |
|
Year End |
31 January |
|
Annual Financial Report |
Final published in April, Half-yearly published in September |
|
AGM |
May |
|
Dividend Pay Dates |
February/March, May, August, November |
|
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 |
|
|
Company No. |
00028276 |
|
FATCA GIIN No. |
ZHLNUL.99999.SL.826 |
Codes |
|
|
RIC |
MRCH.L |
|
SEDOL |
0580007 |
|
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.