- Fund outperforms benchmark in 2023
- Dividend increases by 7% to 7.65p
- Shares sit at 13% discount to NAV
Mid- and small-cap UK growth investor Mercantile Investment Trust (MRC) outperformed its benchmark in the year to 31 January, delivering a net asset total return of 4.5% and total shareholder returns of 6.1%.
The dividend was increased by 7% for the year to 7.65p per share, comfortably covered by revenue per share which was up 25% to 9.01p per share allowing the company to add to revenue reserves which stood at 6.5p per share at the end of January.
The company aims to provide shareholders with long term dividend growth at least in line with inflation. Over the last decade the trust has grown its dividends by an average of 6.7% a year, comfortably ahead of the 2.8% a year increase in consumer price inflation.
The shares ticked up 1% to 224.75p taking gains over the last 12 months to 16.2%, well ahead of the 5% gain in the mid-cap FTSE 250 index. The shares trade at a 13% discount to net asset value.
WHAT DID THE MANAGERS SAY?
Fund managers Guy Anderson and Anthony Lynch at JP Morgan have steered the trust for the last decade.
They commented: ‘Performance this year was aided by a strong outturn from several of our longer-standing investments, led by our substantial holdings in the investment banking and brokerage services sector.
‘We are excited by the investment opportunities that [a] combination of low valuations, improving economic indicators, and strong performing portfolio companies yields. This backdrop explains our elevated level of gearing, which at the date of this report is approximately 15%.
‘This is the highest level of gearing that we have applied in over a decade, which hopefully demonstrates most clearly our assessment of the opportunity before us.’
WINNERS AND LOSERS
Alternative asset manager Intermediate Capital (ICP) remained strong despite well-reported softness in demand for such strategies with the shares up close to 70% over the last year.
Robust corporate demand for IT infrastructure drove good share price performances from Bytes Technology (BYIT), Softcat (SCT) and Computacenter (CCC).
The managers added to their UK housebuilder positions in Bellway (BWY) and Redrow (RDW) and opened a new holding in Vistry (VTY).
On the negative side of the performance ledger was luxury watch retailer Watches of Switzerland (WOSG) which was the biggest detractor after delivering a material profit warning. The managers have reduced the position size and said they are monitoring the situation closely.
Another disappointment was specialist media platform Future (FUTR) which came under pressure as audiences declined in their consumer technology product offering. The managers believe the shares are at an extremely depressed valuation and remain holders.
The team have initiated new positions in industrial engineer Bodycote (BOY) and airline and package holiday provider Jet2 (JET2) and reduced the previous significant underweight position in the real estate sector.
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