- NAV total return of 7.6%
- Performance ahead of benchmark FTSE All-Share index
- Second in peer group over one, three and five years
Investment trust Merchants Trust (MRCH) reported a positive full year ending 31 January 2022 with an NAV total return of 7.6% ahead of the benchmark index FTSE All-Share index return of 5.2%.
Shares in the trust were unmoved on the announcement of the numbers, falling slightly to 567p in early trading.
In performance terms the trust came in second out of its peer group (21 investment trusts with similar objectives) over one, three and five-year periods as of 31 January 2023 according to data from JP Morgan Cazenove.
Merchants has also issued £69 million new shares in the full-year period due to strong investor demand.
The trust’s solid performance can be attributed to the investment managers’ high conviction, value driven portfolio which is weighted towards FTSE 100 holdings primarily (58.6%), FTSE 250 (28.3%), Small Cap (6.8%) and the remaining in non-UK (4.9%) and Cash (1.4%).
Oil giants, for example Shell (SHEL) and BP (BP.) make up 4.5% and 3.4% of Merchants’ holdings.
DIVDEND FOCUS
Merchants is proposing a final quarterly dividend for shareholder approval of 7.0p which means for the full year to January 2023 an increased dividend of 27.6p (2022: 27.3p).
Merchants chair Colin Clark said: ‘The annualised growth rate of the dividend paid by the trust over 41 years stands at 6.6%, well above the rate of inflation over that period which stands at 3.5% annually as measured by the CPI (consumer price index).
‘With the proposed final dividend for the financial year, we will achieve our 41st consecutive year of dividend increases, continuing our focus on striving to provide a high and rising income for shareholders.’
DIFFICULT YEAR FOR INVESTORS
Clark acknowledged that 2022 had been a difficult year for investors with ‘positive returns difficult to achieve as most equity and bond indices were down. Many listed closed-end funds found their discounts widening considerably as investor’s risk appetite dropped overall.’ he added.
The trust admits that its ‘not easy to give any robust predictions on what direction the economy might take or for that matter what short-term challenges may arise’.
FAITH IN MANAGER
Despite the difficult backdrop, the trust’s board has full faith in manager and chief investment officer (CIO) of UK equities Simon Gergel.
Clark said: ‘Valuations in the UK market ultimately remain low compared to their own history and relative to other markets, giving our investment manager added confidence in the potential for generating long-term returns for Merchants shareholders.’
Numis commented: ‘The performance of Merchants in recent years has been strong, with its value approach in favour with
investors. Earnings continue to recover post pandemic and the fund pays a fully covered dividend, yielding 4.8% which
is amongst the highest in the peer group, reflecting the higher yielding stocks within the portfolio.’
