135-year-old trust invests in tomorrow’s market leaders
Thursday 26 Sep 2019 Author: James Crux

Investors have a chance to buy highly-respected The Mercantile Investment Trust (MRC) for 10% less than the value of its underlying assets. A key reason why it is trading cheaply is exposure to UK stocks and the market pricing in a Brexit discount should the UK economy sour.

The mid-cap specialist trust focuses on identifying tomorrow’s market leaders by targeting companies outside of the FTSE 100 with significant room for growth.

The 135-year-old trust seeks to provide long-term capital growth from a portfolio of UK stocks, while achieving long-term dividend growth at least in line with inflation.

Steered by fund managers Guy Anderson and Anthony Lynch, the focus is firmly on valuation and catalysts.

According to Morningstar, the quarterly dividend payer puts money to work with firms where it believes the stock market’s perception of their profitability is underestimated and which can ‘gain market share in rapidly growing markets, those able to disrupt incumbents, or those availed with a nimble business model’.

Within the value space, Mercantile seeks stocks that have disappointed or been neglected by the market, where there is an attractive valuation and the prospect for a turnaround to drive a higher share price.

Within the growth arena, Anderson favours stocks whose earnings and cash flow profiles are underestimated by the market and where there is solid valuation support.

Morningstar also points out that under Anderson’s guidance, the portfolio has become higher conviction with fewer holdings and looks increasingly different to the benchmark (a higher active share).

Shares believes Mercantile’s bias to small and medium sized companies provides welcome diversification to a portfolio focused on UK large caps.

And despite the perceived domestic nature of UK-listed stocks, over which Brexit continues to weigh, it is worth noting that just under half of the revenues are derived from overseas markets, mainly shared between Europe, North America and emerging markets.

Top 10 positions as at 31 August included alternative asset manager Intermediate Capital (ICP), housebuilder Bellway (BWY), and Softcat (SCT), a UK  IT reseller.

Other names include building products play Marshalls (MSLH) and the gold and silver miner Polymetal (POLY).

Mercantile also hold stakes in two recent additions to the stock market: train and bus ticket seller Trainline (TRN) and Watches of Switzerland (WOSG), which distributes over half of the UK’s Rolex watches.

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