The Merchants Trust
UK equity valuations providing many opportunities
15 December 2023
The Merchants Trust (MRCH) manager, Simon Gergel at Allianz Global Investors, has been at the helm for the last 17 years during a variety of market environments. He has remained true to his investment process, seeking high-quality companies with solid fundamentals that are trading on reasonable valuations. The manager is very encouraged by the current valuation backdrop as, in aggregate, the UK market is trading at the low end of its 20-year range and within the market there is a wide dispersion of valuation multiples. A large proportion of UK stocks, including those of quality businesses, are trading on forward P/E multiples of less than 10x, providing Gergel with a large pond in which to fish. His approach has proved successful with mid- and long-term outperformance of MRCH’s broad UK market benchmark. With the trust’s dual mandate of income and capital growth, it offers an attractive 5.2% dividend yield and has grown its annual dividends for the last 41 consecutive years. MORE »
Finding high-quality, well priced opportunities
26 July 2021
The Merchants Trust (MRCH) is managed by Simon Gergel who is chief investment officer, UK equities, at Allianz Global Investors. He stresses that being a value investor does not mean buying bad businesses, and the polarised UK market is enabling him to invest in high-quality companies at reasonable prices. While the manager experienced a tough period of relative performance during the coronavirus-led market sell-off in early 2020, he adhered to his long-term, high-conviction process, which was the correct strategy as shown by the meaningful performance improvement in the chart below. MRCH consistently offers an above-market dividend yield (currently 5.3%). MORE »
Meaningful improvement in relative performance
18 March 2021
The Merchants Trust (MRCH) is managed by Simon Gergel at Allianz Global Investors. He suggests the company is ‘in a much better place’ compared with early 2020. The manager now has more confidence in the trust’s income prospects as dividends are resuming and in some cases being raised, and he has been able to take advantage of stock market volatility to reposition the portfolio. Gergel believes MRCH’s shareholders appreciate how the trust’s investment process remains consistent despite periods of market volatility, while the board’s progressive dividend policy provides an attractive income stream in excess of the UK market. This is reflected in MRCH’s relative performance, which has improved considerably in recent months. The trust currently offers a 5.5% dividend yield, the second highest of the 17 larger-cap peers in the AIC UK Equity Income sector. MORE »
Distinguished history of dividend growth
26 November 2020
The Merchants Trust (MRCH) has been managed by Simon Gergel at Allianz Global Investors (AllianzGI) since 2006. He is continuing to find interesting opportunities in the UK market, seeking high-quality, reasonably valued companies with attractive dividend yields. The manager says we are ‘past the worst’ in terms of dividend cuts in the wake of the coronavirus pandemic, with many companies reinstating their payments. MRCH has sufficient revenue reserves to be able to build on its record of 38 years of consecutive annual dividend growth. As shown in the chart below, the trust offers a consistently above-market dividend yield. MORE »
Opportune reduction in gearing in early 2020
26 May 2020
The Merchants Trust (MRCH) is managed by Simon Gergel at Allianz Global Investors (AllianzGI). Aiming to continue to provide a high and growing level of income, he is adjusting the trust's portfolio in the wake of dividend cuts sparked by the negative economic effects of COVID-19. If there is an income shortfall in this financial year, MRCH is well positioned to maintain its dividend, with revenue reserves of more than 1x the last annual payment. It has not been an easy period for value managers over the last decade as growth stocks have led the charge; however, Gergel has outperformed the UK market over this period in both NAV and share price terms. The board reduced MRCH's gearing in late January 2020, which was opportune timing ahead of the recent significant stock market weakness. MORE »
High and growing level of income
31 October 2019
The Merchants Trust (MRCH) offers investors the potential for long-term capital growth along with a high and growing level of income. Helped by the refinancing of the trust’s high-cost, long-term debt, for FY20 (ending 31 January) the board’s intention is that MRCH’s annual dividend will be at least 4.2% higher year-on-year. Manager Simon Gergel at Allianz Global Investors (AllianzGI) is optimistic about the trust’s prospects, citing a broad opportunity set due to attractive valuations in the UK stock market. He says that at some stage the deeply depressed sentiment towards UK shares should improve, which could lead to a meaningful revaluation of the domestic market. MORE »
Celebrating its 130th birthday with higher dividend
9 May 2019
The Merchants Trust (MRCH) is managed by Simon Gergel at Allianz Global Investors (AllianzGI). He highlights the trust’s growing income stream, long-term capital growth and above-average dividend yield. The manager notes that in FY19, MRCH’s dividend growth of 4.8% was meaningfully higher than the rate of UK inflation, and a step up in dividend growth following the debt refinancing in January 2018. He explains that revenue growth in FY19 was even stronger, allowing an addition to reserves, which can be used to smooth dividend payments in years when revenue growth is lower. Gergel says that MRCH’s portfolio continues to generate a healthy level of income, with most investee companies increasing their dividends, including Legal & General, St James’s Place and the tobacco companies. MORE »
High and growing dividend yield
26 November 2018
The Merchants Trust (MRCH) is managed by Simon Gergel, chief investment officer of UK equities at AllianzGI. He says the current uptick in volatility in the UK stock market is providing a lot of opportunities for active stock pickers, with a wide divergence between the valuation of shares in companies with steady growth characteristics and those whose earnings outlook is less clear. Although MRCH’s annual dividend has increased in each of the last 36 years, growth in the years following the global financial crisis has been modest. However, the manager says the refinancing of a large tranche of the trust’s high-cost debt in January 2018, coupled with higher levels of portfolio income, means the board has increased confidence in growing the dividend at a faster rate, from a starting yield of more than 5%. MORE »
FY18 outperformance continuing in FY19
22 May 2018
The Merchants Trust (MRCH) is managed by Simon Gergel at AllianzGI. He aims to generate a high and growing level of income, with the potential for long-term capital growth, from a portfolio of UK equities. The manager considers there are great opportunities in the UK stock market for high-yield investors, and that in aggregate UK stocks are looking attractively valued compared to global equities. MRCH has a distinguished dividend history; payouts have grown in each of the last 36 consecutive years. In FY18, the annual distribution was 2.5% higher than in FY17 – a larger growth rate than in recent years, reflecting higher dividend growth from portfolio companies, but also due to MRCH’s lower interest costs following the refinancing of a tranche of its high-cost debt in late 2017. MORE »
Benefits from announced debt refinancing
3 November 2017
The Merchants Trust (MRCH) adopts a long-term approach to investing in UK equities, aiming to generate an above-average level of income along with long-term capital and income growth. The trust has announced a refinancing of its first tranche of high-cost debt, which will bring its effective cost of borrowing down from 8.5% to 6.1%, saving £2.8m in annual interest costs and locking in low-cost funding for the next 35 years. The board adopts a progressive dividend policy; annual dividends have increased for the last 35 consecutive years and the current 5.0% yield compares favourably with the average of MRCH’s peers in the AIC UK Equity Income sector. MORE »
New benchmark, same focus on income/growth
12 June 2017
The Merchants Trust (MRCH) aims to generate a high and growing level of income with the potential for long-term capital growth from a relatively concentrated, actively managed portfolio of UK equities. At end-January 2017, the benchmark was changed from the FTSE 100 index to the FTSE All-Share index, reflecting the evolution of the portfolio over several years towards a lower exposure to large-cap equities, giving the manager the opportunity to select from a broader range of dividend-paying companies. MRCH has a competitive yield compared to the UK stock market and also versus its peers. It has a progressive dividend policy and has increased its annual dividend for the last 35 consecutive years. MORE »
High income and dividend growth
9 January 2017
The Merchants Trust (MRCH) invests in a portfolio of primarily large-cap UK equities aiming to generate income and long-term capital growth. MRCH differentiates itself from its peers due to its high income and dividend growth – its dividend yield is consistently above the benchmark FTSE 100 index – and has 34 years of consecutive annual dividend growth. Near-term investment performance has improved; this is partly a function of rising bond yields as investors are starting to rotate away from expensive bond proxies and towards more cyclical, higher-yielding sectors of the UK stock market. MRCH is now outperforming its benchmark over five years. Gearing of up to 25% of net assets is permitted. MORE »
High and growing income
7 July 2016
The Merchants Trust (MRCH) is a very well-established trust investing in UK equities, primarily in higher-yielding, large-cap companies, which aims to produce high income and long-term growth in capital and income. While recent months have been a difficult period for investing in this area, the manager sees good value in the portfolio across a range of themes. MRCH ranks highly in the AIC UK Equity Income sector in terms of dividend yield (c 6.0% vs 4.5% sector average) and the annual dividend has increased in each of the last 34 years, providing investors with an important source of total return in an environment of low earnings growth. The latest annual dividend was more than covered by income. MORE »
High yield from focused UK equity portfolio
17 December 2015
The Merchants Trust (MRCH) offers one of the highest yields currently available on a mainstream equity investment trust (5.9% at 11 December), as well as the potential for capital growth. Manager Simon Gergel has positioned the trust with a tilt towards mega caps in areas such as banks, where dividend growth could come back strongly as legacy issues subside. The focused portfolio of 44 stocks also has exposure to UK economic growth via the industrial and consumer services sectors, and selected holdings in resources offer recovery potential. MRCH pays dividends quarterly and has a 33-year record of annual dividend growth. The discount has widened over the year as large caps have fallen from favour, with scope for it to narrow to a level more in line with long-term averages. MORE »
UK equity 'best ideas' with 5% dividend yield
13 July 2015
The Merchants Trust (MRCH) is a concentrated portfolio of mainly larger UK companies, with a focus on producing a high income along with capital and income growth. It uses the FTSE 100 index as a performance measure, although around one-third of portfolio holdings are outside the index. Stock selection is mainly bottom-up but manager Simon Gergel assigns holdings to broad themes, including mega-caps and cyclical recovery or turnaround situations. The trust has raised its ordinary dividend in each of the past 33 years. A move from a premium to a discount over the past six months could be viewed as a buying opportunity, particularly as MRCH has one of the highest yields in the UK Equity Income peer group, at c 5%. MORE »
High-yielding, focused UK portfolio
4 December 2014
The Merchants Trust (MRCH) is a concentrated portfolio (c 45 stocks) of mainly blue-chip equities, chosen for their potential to provide a high and growing income as well as long-term capital appreciation. The trust has raised its ordinary dividend in each of the last 32 years. With a high yield of c 5%, the trust trades on a slight premium and has been issuing shares to meet demand. MORE »
Large-cap contrarian with above-average yield
4 June 2014
The Merchants Trust (MRCH) takes a contrarian, value-driven approach to investing in mainly large-cap UK companies, with the aim of achieving a high and growing income as well as capital growth. Managed by Allianz Global Investors and its precursor companies since launch in 1889, it has evolved from a diversified global portfolio to a focused UK specialist, and is the only trust in its peer group with a FTSE 100 index benchmark. It has beaten the index in price and NAV terms in three of the last four years to 31 May, and its 4.6% yield is among the highest in its sector. With its dividend – which has a 32-year record of growth – now fully covered by income, it has recently been issuing shares at a premium to NAV. MORE »
Daily comment
30 May 2014
Quarterly income from value-focused portfolio
17 October 2013
The Merchants Trust (MRCH), managed by Simon Gergel, CIO UK Equities at Allianz Global Investors (AGI), has continued to outperform its FTSE 100 benchmark during the last 12 months, providing price and NAV total returns of 39.4% and 26.2% vs 16.7% for the FTSE 100. Dividends are paid quarterly, MRCH has an above-average yield (4.7%) and the recent interims suggest it is on track to provide 32 years of uninterrupted dividend growth. MRCH is managed using a value-driven investment style, and while the manager acknowledges it is currently more challenging to find value, he is identifying opportunities in the mega-caps (oils) and recovery stocks. MORE »
31 years of uninterrupted dividend growth
24 April 2013
The Merchants Trust (MRCH) is managed by Simon Gergel, CIO UK Equities at RCM, part of Allianz Global Investors (AGI) and provides a blend of characteristics that should appeal to many investors. Its FTSE 100 benchmark and core holdings in large, financially strong companies capable of sustaining dividend pay outs confers the benefits of underlying geographical diversity and a premium yield. As an equity fund it should provide some protection in the event of a surge in inflation, while within the portfolio the manager has added companies with exposure to real assets partly to address this particular tail risk. The fund has outperformed its benchmark over a range of periods from one month to 10 years (see page 7). The yield of 5.4% and 31 years of uninterrupted dividend growth are key positive attributes. MORE »
Income trust with a 6.2% yield
29 October 2012
During the last 12 months, the Merchants Trust (MRCH) has outperformed its benchmark index, the FTSE 100, by 3.0% in terms of NAV total return. Despite this, the discount has gone from a premium of 5.9% to a discount of 2.0% with debt at fair value. For the half-year ended 31 July 2012, in total return terms the underlying portfolio beat the FTSE 100 by 4.2% (the FTSE 100 rose by 1.4%). Gearing added 0.8% to performance, despite an expensive tranche of debt that expires in 2018. The trust pays quarterly dividends and its recent interims suggest that the trust is well positioned to provide investors with 31 years of uninterrupted dividend growth. MRCH is managed using a value-driven investment style and remains defensively positioned MORE »
30 successive years of dividend growth
3 April 2012
The Merchants Trust (MRCH) has again increased its total year-on-year dividend, reaching the 30th year of providing investors with uninterrupted dividend growth. The underlying portfolio beat the FTSE 100, in total return terms for the year ended 31 January, by 1.5% (the FTSE 100 rose by 0.4%). Gearing subtracted 0.9% from performance, but an expensive tranche of debt, currently valued above par, expires in 2018. The trust pays quarterly dividends, is managed using a value-driven investment style and remains defensively positioned. MORE »
Quarterly income and a 6.2% yield
3 October 2011
During the last 12 months, the Merchants Trust (MRCH) has outperformed its benchmark index, the FTSE 100, by 8.7% in terms of share price total return and 2.3% in terms of NAV total return. The trust pays quarterly dividends and, with its recent interims, has indicated that it is in line to provide investors with 30 years of uninterrupted dividend growth. MRCH is managed using a value-driven investment style and remains defensively positioned. MORE »
