Page 34 - DIY Investor Magazine - Issue 27
P. 34

   The Merchants Trust PLC has, for many years, focused on a simple proposition: to deliver a high and rising income together with capital growth, through a policy of investing mainly in higher-yielding large UK companies. We measure our success in attaining this objective by comparing the performance of the portfolio against the performance of the FTSE All-Share Index
Merchants was established in 1889. Today the Trust invests in a diversified portfolio of large, well-established and well-known UK companies. These companies are able to grow their sales over time or cut costs in order to preserve or improve their profit margins. This enables them, in general, to maintain and increase their dividends over time.
The UK stock market is a good environment in which to
invest as many of the companies listed on the London Stock Exchange are truly international in nature, including some of the world’s largest and best known multinationals.
This provides Merchants shareholders with exposure to global end markets whilst benefiting from the UK’s leading corporate governance standards.
The Merchants Trust celebrated its 130th anniversary in 2019, having successfully navigated a variety of market conditions – and several world conflicts - throughout its history.
Although the present day Merchants has a very different investment strategy to the one of 1889, the Trust was set up to deliver something very similar to what it does today: to invest in a diverse group of investments in order to provide investors with an opportunity to benefit from some of the growth industries of the era.
Merchants’ objective was to deliver healthy dividends of perhaps 5 to 6% plus capital growth, by investing in North American railway expansion, as well as in other continents, countries and industries.
The Trust survived various panics in its early years, when it experienced all manner of market conditions but still managed to pay out to its founding investors healthy and gradually increasing dividends.
Few of the trust’s early investments still exist today, arguably a demonstration of the benefit of active management over time. The companies we invest in now don’t tend to have a 130 year history, so the real benefits of changing the portfolio gradually have become apparent over the very long term.
Portfolio Manager Simon Gergel says: ‘It is a great privilege to be the fund manager of The Merchants Trust as it turns 130 years old. This remarkable achievement provides perspective in a world obsessed with short-term market movements, political and economic risk.
‘One of the great features of investment companies is the ability of the board to set strategy and to adapt to a changing world. Merchants was formed originally to finance the North American railway boom, and other opportunities elsewhere around the world, but it has evolved over the years.
Whilst Merchants now invests solely in UK companies, it is notable that many British companies are multinational businesses, with the majority of Merchants’ portfolio’s underlying sales and profits still coming from abroad.
Generating a high income has always been part of Merchants’ DNA, long before DNA was discovered, and we are proud to have been able to raise the Trust’s ordinary dividend for the last 37 years.’
Through Merchants, investors can access a concentrated portfolio of large UK companies that aims to provide a rising income as well as long term capital growth.
Managed since 2006 by Chief Investment Officer of UK Equities, Simon Gergel, the Trust favours companies with strong cash flows and good fundamentals.
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