/ FUND, PENSION, TRUST /
Trust
MERCHANTS TRUST
The trust has increased its dividend for 35 years in a row
and its yield of 5.2 per cent is one of the highest in its sector
100%
Merchants Trust (90.06%)
80%
FTSE 100 (86.34%)
60%
IT UK Equity Income (84.46%)
40%
20%
0%
-20%
-40%
-60%
MANAGER: Simon Gergel
LAUNCHED: 1889
PREMIUM/DISCOUNT: -3.4%
OCF: 0.63%
FE CROWN RATING:
PERFORMANCE OF TRUST VS SECTOR
AND INDEX UNDER MANAGER TENURE
FILE
“The UK stock market is a good
place to invest fundamentally,”
he explained. “We have some of
the best stewardship standards
in the world.”
“As an income investor,
dividends are an established
tradition in the UK. Companies
really understand the importance
of maintaining dividends,
although not at all costs.”
Gergel is confident Merchants
Trust will increase its dividend by
2.5 per cent during the first half
of the year. It is currently yielding
5.2 per cent, one of the highest
figures in the sector.
Simon Fraser, the trust’s
chairman, added: “One of our
distinctive features is our high
and growing dividend; we’ve
grown the dividend for 35 years
consecutively.”
“We hope to be able to
continue to grow it, we’re pretty
T
HE PROSPECT OF
INVESTING IN UK EQUITIES
has become less attractive
since the British electorate voted
to leave the EU. Despite the
initial surge, the UK market has
lagged its international peers
since 24 June 2016 as investors
have eschewed domestic stocks
in favour of more geographically
diversified strategies.
Yet for Simon Gergel, manager
of the 129-year-old Merchants
Trust, the UK remains one of
the most attractive destinations
for income investors despite the
uncertainty surrounding Brexit.
“Around 75 per cent of profits
from UK plc come from abroad,”
he said. “That’s potentially a good
opportunity where the market
is very lowly valued because
of Brexit, but actually many of
the stocks in the market aren’t
particularly exposed.”
The manager also pointed out
that many of the industries likely to
suffer a direct impact from Brexit
are not listed in the UK, such as
those in the auto sector. As such,
he noted that opportunities for
income investing remain attractive,
particularly as the UK corporate
environment remains supportive of
the dividend-paying culture.
much covering our dividend for
the first time in several years
having previously dipped into
the reserves following the 2008
[global financial] crisis.”
Another recent change has
seen the trust secure a new debt
facility, which has helped to ease
some pressure considering its
current level of gearing stands at
18 per cent.
“It’s quite a highly geared trust,”
said Fraser. “Fortunately, we were
able to pay off some of our very
expensive debt at the end of last
year which was costing us 11.5
per cent per annum for 25 years.”
“We refinanced with some long-
term debt that costs 2.96 per cent
and will last for 35 years. It’s a
much more reasonable rate and
[was] one of the things hanging
over us.”
Merchants Trust has delivered
a total return of 90.06 per cent
since Gergel joined in May 2006,
compared with 86.34 per cent
from its FTSE 100 benchmark and
84.46 per cent from the average
IT UK Equity Income trust.
Source: FE Analytics
20
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