Merchants Trust outperforms in testing year

Chairman Colin Clark expects more tailwinds after the trust bested much of its sector last year

Simon Gergel. CEO UK Equity Allianz GI

Merchants Trust put up a strong performance against a challenging market backdrop during the year to 31 January, growing its share price by 7.9% over the 12 months.

Managed by Allianz Global Investors’ Simon Gergel (pictured), Merchants  placed second in its AIC UK Equity Income peer group over the period, posting a net asset value total return of 7.6%.

This was 2.4 percentage points higher than its benchmark, the FTSE All-Share index, and with net assets growing to £812m from £739m across the 12 months, its strong share price return left the trust trading at a premium, or close to NAV, for the majority of the year.

It also places second in its peer group over three- and five-year timeframes.

Colin Clark, the trust’s chairman, said 2022 was a year where positive returns for investors were “difficult to achieve” given that most equity and bond indices were down.

In the context of some £1.5bn of outflows from open-ended funds in the UK Equity Income sector, Clark said it had been a “positive” year for the trust against a difficult market backdrop.

In addition, the trust cemented its place in the AIC Dividend Hero club, achieving 41 consecutive years of growing its dividend.

Despite the strong relative performance, Merchants’ profits before tax were well down on its bumper FY2022; the £44.7m it generated this year being some 75% lower than last year’s figure. The discrepancy was due predominantly to the market turbulence, as the value of the trust’s investments grew £7.8m compared to £155m in FY2022.

Clark said valuations in the UK market were historically low, and he was bullish about its prospects in the coming months: “While Merchants’ investment strategy is not dependent on any outperformance of the ‘value’ investment style, should we see structurally higher interest rates persisting over the coming year. That should provide a welcome tailwind for the portfolio as investors will continue to favour nearer-term tangible cash flows over future potential cash flows from higher growth companies.”

Since the 1 Feb, the trust’s share price has fallen 4% to £5.68, leaving it trading at a premium of 1.2% as of 5 April.

See also: Allianz Global Investors unveils ESG data platform

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