Last year saw a revival of the IPO market, with the fourth quarter of 2013 being the third largest IPO quarter for a decade. Last year the trust’s managers met 21 companies well ahead of their offerings and invested in six of them. Each, said the managers, added to the performance of Mercantile and they are continuing to research a number of companies which may come to the stock market over the next 18 months.
Positive contributions to performance also came from the overweight position in the household goods and home construction sectors. Housebuilders were particularly strong, benefiting from supportive government initiatives, with two of the strongest holdings being Persimmon and Barratt Developments. The trust’s media sector performance was also strong last year, in particular benefiting from an increasing appreciation of the strong non-newspaper growth prospects within the Daily Mail & General Trust group, which was the third largest contributor to performance in the portfolio last year.
Hamish Leslie Melville, the trust’s chairman, said of the outlook for the sector: “The last two years have provided exceptional returns for investors in small and medium-sized UK companies, as the market re-rated in anticipation of an improving economic environment. The more domestically exposed small and medium-sized companies should continue to benefit from this growth, as they derive a significantly greater proportion of revenue from the UK than their larger counterparts. We do expect heightened volatility, but whilst such conditions may present threats, there will also be opportunities.”
The £1.8 billion trust, which launched in 1884, is the only closed-ended vehicle which invests across the UK mid and small-cap equity markets. It is benchmarked against the FTSE All Share Index ex FTSE 100, excluding investment trusts. Its primary aim is to achieve both capital growth and an attractive income yield. The portfolio comprises around 140 stocks of which 95 are mid-sized and 45 are smaller companies.
The net asset value (NAV) of the trust was broadly in line with its benchmark over the year, with a total return of 27.7%. The discount narrowed slightly from 15.3% to 9.8%, and the company has paid three interim dividends of 8.0p per ordinary share. The directors have declared a fourth quarterly interim dividend of 16.0p, giving a total dividend of 40.0p for the year, an increase of 11.1% on the previous year’s dividend of 36.0p.
