Mercantile

[monabri]

The Directors have declared that a fourth quarterly interim dividend of 2.55 pence per share will be paid on 15th May 2020 to shareholders on the register as at the close of business on 14th April 2020. The ex-dividend date will be 9th April 2020. This brings the total dividend for the financial year ended 31st January 2020 to 6.60 pence, a 4.8% increase on last year's total dividend of 6.30 pence per share.

https://www.londonstockexchange.com/exc ... 81670.html

[richfool]

Mercantile Half Yearly report:

How to keep a positive face on a gloomy report:

We achieved a return of -22.1%, but that was better than the benchmark return of: -23.2%.

Ah, but wait a minute, taking into account the widening discount, the return to investors was actually -28.5%.

In the six months to 31st July 2020 the Company produced a return on net assets of -22.1%. This compares with the return of -23.2% from our benchmark index. Although such negative returns are always distressing, for our Investment Managers to outperform our benchmark index is a highly creditable achievement especially given the circumstances, the market volatility and the fact that the portfolio has been geared for most of the period.

The return to shareholders was -28.5%, as the discount at which the Company's shares trade widened from 1.4% to 8.1% (calculated with debt at fair value) over the half year, consistent with a general widening of discounts across the investment trust sector.

Though the better news was that they are maintaining the quarterly dividend at 1.35p.

Returns and Dividends

A first quarterly interim dividend of 1.35 pence was paid on 3rd August 2020 and a second quarterly interim dividend of 1.35 pence per share has been declared by the Board, payable on 2nd November 2020 to shareholders on the register at close of business on 25th September 2020. This brings the total dividend for the year to date to 2.70 pence (2019: 2.70 pence). The Board intends to pay a third quarterly interim dividend of 1.35 pence in early February 2021.

One of the structural advantages of a closed end investment trust is the ability to use revenue reserves to smooth dividend payments in more difficult times and the Board confirms that its current intention is at least to maintain last year's total dividend of 6.60p per share for this financial year.

I continue to hold MRC.

https://www.investegate.co.uk/mercantil ... 30029737C/

[Dod101]

Hi richfool

I see no reason to hold Mercantile. The results are appalling even given the current situation. Looks as if the dividend will be held.

They have what might in normal times be regarded as not a bad lot of investments but they have proved to be very poor when it came to the crunch.

I appreciate that they are in a very different market and you probably know them already, but take Alliance Trust which never gets much of a mention. For the 6 months to 30 June, their NAV was down by only 4.4% and they increased their interim dividend by 3% and say they intend to maintain that increase for the year.

I know Alliance quite well and am very happy to hold.

Dod

[everhopeful]

Shares in smaller UK companies have been hit hard and it is irrelevant to compare their performance with the big US beasts which Alliance holds. Mercantile has beaten its benchmark at 3,5 and 10 years and if one wants some exposure to smaller UK companies it seems like a reasonable place to be.

[Dod101]

Shares in smaller UK companies have been hit hard and it is irrelevant to compare their performance with the big US beasts which Alliance holds. Mercantile has beaten its benchmark at 3,5 and 10 years and if one wants some exposure to smaller UK companies it seems like a reasonable place to be.

You could be right of course but these days I want total return where ever I can find it and there is no doubt that Mercantile's results are not good, even against its own benchmark.

Dod

[Lootman]

Shares in smaller UK companies have been hit hard and it is irrelevant to compare their performance with the big US beasts which Alliance holds. Mercantile has beaten its benchmark at 3,5 and 10 years and if one wants some exposure to smaller UK companies it seems like a reasonable place to be.

Mercantile is not classified as being a UK smaller companies trust. If that is the sector you want then ITs like Blackrock Throgmorton and Standard Life have done better.

I think of it more as a midcap UK trust. In fact it contains some FTSE-100 names. And since it insists on trying to pay a high'ish income it is unlikely to ever be a top grower. I'd probably go for the Vanguard mid-cap ETF (VMID) instead if you want to be in that space.

[richfool]

Yes, I invested in Mercantile a few years back, for the exposure to UK mid caps. It was at that time and for a while after, amongst the top performers in its sector, along with its brother J P Morgan Mid Cap IT. Unfortunately the sector has fallen out of favour due to events. I did reduce my holding a few months back, but am holding the rest pending a recovery.

I get my UK Smaller Coy exposure through Standard Life Smaller Coys (SLS), which has performed much better, albeit with a much lower dividend yield.

[Dod101]

Yes, I invested in Mercantile a few years back, for the exposure to UK mid caps. It was at that time and for a while after, amongst the top performers in its sector, along with its brother J P Morgan Mid Cap IT. Unfortunately the sector has fallen out of favour due to events. I did reduce my holding a few months back, but am holding the rest pending a recovery.

I get my UK Smaller Coy exposure through Standard Life Smaller Coys (SLS), which has performed much better, albeit with a much lower dividend yield.

But the question is 'Do you need the UK Smaller Coy's exposure?' This sounds as if you are trying to get something where you might as well be in a tracker.

Dod

[richfool]

Yes, I invested in Mercantile a few years back, for the exposure to UK mid caps. It was at that time and for a while after, amongst the top performers in its sector, along with its brother J P Morgan Mid Cap IT. Unfortunately the sector has fallen out of favour due to events. I did reduce my holding a few months back, but am holding the rest pending a recovery.

I get my UK Smaller Coy exposure through Standard Life Smaller Coys (SLS), which has performed much better, albeit with a much lower dividend yield.

But the question is 'Do you need the UK Smaller Coy's exposure?' This sounds as if you are trying to get something where you might as well be in a tracker.

Dod

Assuming you do mean, - why do I need exposure to UK Smaller coy's (as opposed to UK mid caps), - small companies have the prospect of greater capital growth (when economic conditions are right), as compared to large cap stocks . I hold smaller coys for those reasons. Indeed I hold various other sectors for similar reasons and for the diversity they provide. We know from experience that when some sectors are out of favour, others are in favour. It was for much the same reason that I hold Mercantile, for the exposure to the mid cap space and some dividend income too.

OK, you may say that I can get some exposure to most sectors and geographies through a global trust (or tracker), and whilst I do hold several global trusts, I still like to use more specialist fund managers to gain exposure to more specialist areas. E.g. Standard Life Smaller Coys trust, managed by Harry Nimmo, with an excellent track record (3rd out of 23, over 3 years in the Citywire performance tables):

https://citywire.co.uk/wealth_manager/i ... Period:36;

[everhopeful]

Mercantile is listed by the AIC as having 31% in Small growth stock and 21% in Small value stock. Its benchmark is the UK all companies. It is a mixture of small and mid cap stock. Its largest holding is Games Workshop which is also a large holding in SLS.

[Adamski]

The performance chart looks pretty tragic for this one, flatlining since March. Would have though BG British Small cos would be better bet in this sector as returns very strong last 6 months.

[jackdaww]

The performance chart looks pretty tragic for this one, flatlining since March. Would have though BG British Small cos would be better bet in this sector as returns very strong last 6 months.

====================

presume you mean BGUK ?

[ADrunkenMarcus]

But the question is 'Do you need the UK Smaller Coy's exposure?'

If you're deciding to invest in UK equities, then yes IMHO.

Smaller or medium sized companies such as Renishaw, Diploma, Spirax Sarco Engineering and Rotork have provided me with very good returns and are far superior to some of the structurally challenged mega caps in the FTSE 100. And the FTSE 250 has outperformed the FTSE 100 with, I think, better future prospects too.

Best wishes

Mark.

[Arborbridge]

How a few months changes the outlook!
I've held Mercantile (assuming this is MRC) since 2012, and in all that time it's TR has been one of the better ones in my income IT basket. The XIRR is normally in the double figure range, around 12-13% with a rapidly increasing payout.

It's been one of those low yielders with high growth in payouts and good XIRR, leading me to drip more capital into it over the past couple of years. It was once praised by the likes of Luni, it was promoted by those who liked a "process" rather than a star manager, it was useful to provide a little diversity from the usual FTSE 100 stocks ( getting away from the same "Pond" the others fish in) . Now it has had a torrid time and the knives come out.
Even at the end of the third quarter, the XIRR was showing 8.1% and opposed to 5.28% for the whole of the ArbIT basket.

The question for us is whether it will come back on track in the medium term, and that will naturally depend on the UK economy doing the same. If the discount has increased, and we still believe the "process" employed by management is valid, then the obvious thing to do is top up and wait for reversion to mean.

Wasn't Alliance Trust a perpetual underperformer once, with a chronic discount?

PS and I note along with Adrunkenmarcus that it is packed with excellent companies which I am happy to have a stake in.
Arb.

[richfool]

How a few months changes the outlook!
I've held Mercantile (assuming this is MRC) since 2012, and in all that time it's TR has been one of the better ones in my income IT basket. The XIRR is normally in the double figure range, around 12-13% with a rapidly increasing payout.

It's been one of those low yielders with high growth in payouts and good XIRR, leading me to drip more capital into it over the past couple of years. It was once praised by the likes of Luni, it was promoted by those who liked a "process" rather than a star manager, it was useful to provide a little diversity from the usual FTSE 100 stocks ( getting away from the same "Pond" the others fish in) . Now it has had a torrid time and the knives come out.
Even at the end of the third quarter, the XIRR was showing 8.1% and opposed to 5.28% for the whole of the ArbIT basket.

The question for us is whether it will come back on track in the medium term, and that will naturally depend on the UK economy doing the same. If the discount has increased, and we still believe the "process" employed by management is valid, then the obvious thing to do is top up and wait for reversion to mean.

Wasn't Alliance Trust a perpetual underperformer once, with a chronic discount?

Arb.

Yep, agreed.

I have held on the assumption that the recovery of that sector will take place. It's been setback by Brexit worries, which have dragged on and of course are still unresolved, and then more recently by Covid 19 implications. I am sure it's day will come again, though the question is more a case of when. I must admit at getting somewhat impatient! SLS a somewhat different animal, as a smaller coy only trust, has performed much better.

[Dod101]

How a few months changes the outlook!
I've held Mercantile (assuming this is MRC) since 2012, and in all that time it's TR has been one of the better ones in my income IT basket. The XIRR is normally in the double figure range, around 12-13% with a rapidly increasing payout.

It's been one of those low yielders with high growth in payouts and good XIRR, leading me to drip more capital into it over the past couple of years. It was once praised by the likes of Luni, it was promoted by those who liked a "process" rather than a star manager, it was useful to provide a little diversity from the usual FTSE 100 stocks ( getting away from the same "Pond" the others fish in) . Now it has had a torrid time and the knives come out.
Even at the end of the third quarter, the XIRR was showing 8.1% and opposed to 5.28% for the whole of the ArbIT basket.

The question for us is whether it will come back on track in the medium term, and that will naturally depend on the UK economy doing the same. If the discount has increased, and we still believe the "process" employed by management is valid, then the obvious thing to do is top up and wait for reversion to mean.

Wasn't Alliance Trust a perpetual underperformer once, with a chronic discount?

PS and I note along with Adrunkenmarcus that it is packed with excellent companies which I am happy to have a stake in.
Arb.

I have probably got it wrong with Mercantile, but it has certainly been hit very hard.

Strangely enough I do not think that Alliance has ever been 'a perpetual underperformer' despite its problems in the 2010s. It always managed to increase its dividend as I recall and although it no doubt had a few off years (which IT doesn't?) its long term record is reasonable. Nowadays it is doing quite well, although I find it difficult to reconcile myself to the apparently top heavy investment management. Willis Towers Watson seem to be doing a decent job on monitoring their various stock pickers, as they call the investment teams.

I will keep an eye on Mercantile although I have no intention of buying into it.

Dod

[scotia]

I was a one-time investor in Mercantile (MRC), but from autumn 2015 to autumn of 2019 it followed, reasonably closely, a FTSE 250 tracker (on a total return basis). So I moved on. From September 2019 to early March 2020 it rocketed upwards, then plunged spectacularly. With its discount recovering from around -14% to -4% recently, its 5-year total return is now slightly better than a tracker - but with a volatile discount which will keep me well clear of it - especially with so many uncertainties and headwinds facing the UK markets.

[richfool]

I was a one-time investor in Mercantile (MRC), but from autumn 2015 to autumn of 2019 it followed, reasonably closely, a FTSE 250 tracker (on a total return basis). So I moved on. From September 2019 to early March 2020 it rocketed upwards, then plunged spectacularly. With its discount recovering from around -14% to -4% recently, its 5-year total return is now slightly better than a tracker - but with a volatile discount which will keep me well clear of it - especially with so many uncertainties and headwinds facing the UK markets.

But that is the point though, - UK smaller companies have been shunned by the market and Mercantile's SP badly depressed, by Brexit uncertainties; and agreed we don't know how they will shake down over the next few months or even years. Plus the uncertainties of Covid. For those reasons it could, over the last 6 months or so, have actually presented a good buying opportunity. If Arb has been quietly topping up, (rather than quietly reducing like me), he could well be on the right track to reap benefits in a year or twos time. It could be one of those great contrarian/value plays.

Themes like: "horses for courses" and "value plays", come to mind, depending on what one is looking for and over what time frames.

[midgesgalore]

I was a one-time investor in Mercantile (MRC), but from autumn 2015 to autumn of 2019 it followed, reasonably closely, a FTSE 250 tracker (on a total return basis). So I moved on. From September 2019 to early March 2020 it rocketed upwards, then plunged spectacularly. With its discount recovering from around -14% to -4% recently, its 5-year total return is now slightly better than a tracker - but with a volatile discount which will keep me well clear of it - especially with so many uncertainties and headwinds facing the UK markets.

With all that you said in mind - guess who bought into this IT in mid February? Groan!!
I thought the pandemic was going to blow over like the SARS outbreak. Wrong

I am not going to sell though as there is no need for me to make a loss on what I think has a fighting chance of coming good again in a year or so.

midgesgalore

[Arborbridge]

I was a one-time investor in Mercantile (MRC), but from autumn 2015 to autumn of 2019 it followed, reasonably closely, a FTSE 250 tracker (on a total return basis). So I moved on. From September 2019 to early March 2020 it rocketed upwards, then plunged spectacularly. With its discount recovering from around -14% to -4% recently, its 5-year total return is now slightly better than a tracker - but with a volatile discount which will keep me well clear of it - especially with so many uncertainties and headwinds facing the UK markets.

I'm really interested in the dividends, as in general I do not intend to sell. Would a FTSE250 tracker have given you a 9.9% pa increase in dividends across those five years you mention?
One of the reasons for adding MRC to my basket in incITs was that I accepted the argument that a lower yield but higher dividend increase was safer - up until now it has been. It shares this with Law Debenture - low yield but higher rate of increase.

Compare with another stalwart, CTY, which has about half the dividend growth and an XIRR of 4.5% at present.

In general, I try to let these judgements wash over me and do "a bit of this, and a bit of tht". I've been investing many decades and it seems that shares or ITs both suffer with being the best thing since sliced bread - but then there's a bad year and the "boards" conclude one is pretty stupid for being caught holding one which fell of a cliff.

It happens, so I've got used to it, as we all must. The solution for some is an ETF tracker - but I am always a little unsure of these semi-artificial vehicles, rather preferring a board of directors with skin in the game.

For now, I have a basket of ITs which are all reasonably sober and recommendable. Some will falter - none will shoot the lights out, but they provide a core income for my retirement with little effort from me. If the discounts increase, I will probably buy more - taking the risk that they are about to collapse into dog status.
So often, I've looked back on one of them when they have come out of a dip, a crisis even, and thought -"if only I'd bought some more then!" But when one is in such a dip, it is very hard to do - good money after back and all that.


Arb.