Page 10 - DIY Investor Magazine | Issue 33

SIX REASONS TO INVEST IN THE MERCANTILE INVESTMENT TRUST
The Mercantile Investment Trust invests in medium and smaller UK companies. The managers’ objective is to spot businesses with the potential to grow into ‘tomorrow’s market leaders’.
The past being an indicator and not a guarantee, it is interesting to look back at returns from this segment of the market which have historically outpaced those of the UK’s largest FTSE 100 companies, and Mercantile’s share price and dividends have significantly outpaced inflation over the past five years, an important consideration in today’s economic climate.
In addition to this strong performance track record, Mercantile offers investors other compelling features, let’s take a look at a few of them:
Mercantile’s investment team, led by Guy Anderson and Anthony Lynch, believe that investing in the UK’s medium and smaller companies today is as attractive as ever, despite the challenges businesses face due to rising costs and increasing taxes.
Pricing power and long-term competitive strength have always been a focus for the managers when choosing which businesses to back. These are the businesses that are best placed to navigate the current environment and become the market leaders of tomorrow.
This strategy underlies the trust’s 30 year track record of delivering a stable and rising income. Even in difficult times, careful management of its income reserves has enabled Mercantile to maintain or increase its annual dividend through a variety of crises, such as the bursting of the Dot-com bubble, the Global Financial Crisis and the Covid-19 pandemic.
Mercantile’s investments consist of a mixture of long-held positions in companies which continue to show strong growth as they emerge from the pandemic and evolve into market leaders, as well as more recent investments including companies newly floated on the London Stock Exchange.
The rigorous investment process followed by the experienced investment managers includes regular interaction with company management teams, with over 350 meetings taking place each year.
They are always on the lookout for the most exciting medium and smaller-sized companies, focusing on identifying those with the best prospects. The fundamentals are always carefully considered: the companies must have sound finances and strong management, the outlook for the businesses must be positive, and the shares must be the right price.
‘SOUND FINANCES AND STRONG MANAGEMENT, THE OUTLOOK FOR THE BUSINESSES MUST BE POSITIVE, AND THE SHARES MUST BE THE RIGHT PRICE’
When the managers invest in newly floated companies,
it is because they believe in the long-term future success prospects of the businesses, rather than because they are hoping to make a quick profit.
In the same way, Mercantile’s managers do not intentionally invest in companies thought to be takeover targets. If this does happen, they argue that it is a by-product of their strategy of searching out exceptional companies with good prospects and paying a reasonable price for them.
If a company held in the portfolio is approached, the offer is assessed and dealt with on its merits.
Looking ahead, the investment team believe there are reasons to be optimistic about the outlook for UK companies this
year. They expect the post-pandemic economic recovery to continue and companies’ earnings growth to be strong.
DIY Investor Magazine · Apr 2022 10