The Lemon Fool

My portfolio is relatively new, about 8 months. I structured it in two, growth holdings in an investment account and an income focus in my ISA.

My ISA has 4 holdings; global equities, UK equities, a renewables and a corporate bond fund.

For the Uk equity fund I considered City and Merchants, opting for Merchants on the basis that they had similar yields but historically Merchants has delivered better growth in its share price. Looking at the data now, Merchants have delivered 7.38% over 5-years (City -0.55%) and 6.72% over 10-years (City 7.71%). I gave more weight to the 5-year data so opted for Merchants. Being totally honest, I suspected that there wouldn’t be huge differences between their stock picking given their similar strategies and the relatively small size of their investment universes - but that was my non-evidenced based assumption.

Of my 8 holdings, Merchants has been the worse performing, although 8 months is nothing of course. But still, my renewables has outperformed it (just) as has my corporate bond fund. Factor in dividends then the gap is even more stark as my renewables and corporate bond fund are yielding more than Merchants.

So today I decided to dig deeper into Merchants. Mea culpa, I should have done this from the start of course, rather than just relying on marketing data and fact sheets. I am surprised that their 11th largest holding is (or was at the time of their last annual report) St James Place. I am not completely financially illiterate but even I know that much (not all), of the IFA sector is iffy to say the least. I long ago decided SJP was something to avoid when I was looking for an IFA a few years ago.

St James Place are -60% over the last 12 months! So this must be one of the main drivers behind Merchants recent poor performance. Ouch!

I will sit tight for now, but will look out for their next annual report with interest.

I normally look at 1/3/5 year share price total return %:

MRCH 0.5 / 23.1 / 44.3
CTY 5.2 / 24.0 / 26.5

It's not a fair comparison, but VWRL (an all world etf) is 22.3 / 34.0 / 73.7.

AndrewInDevon wrote: although 8 months is nothing of course.

Quite, history is helpful, over months CTY is the clear winner.

Handy charting here https://www.theaic.co.uk/companydata/me ... erformance

10 years
Merchants Trust Ord (Share Price TR) +82.65%
Merchants Trust Ord (NAV TR) +90.41% ×
City of London Ord (Share Price TR) +69.55% ×
City of London Ord (NAV TR) +79.70% ×

It's not a fair comparison, but VWRL (an all world etf)

I think I know what you're getting at, but what is unfair about the comparison?

clissold345 wrote:I normally look at 1/3/5 year share price total return %:

MRCH 0.5 / 23.1 / 44.3
CTY 5.2 / 24.0 / 26.5

It's not a fair comparison, but VWRL (an all world etf) is 22.3 / 34.0 / 73.7.

That data makes my point - Merchants was doing ok until very recently, when it has gone significantly off-piste. St James Place may be a big driver here, there may be other reasons.

Agreed, VWRL is not a good comparison at all. Its a bit weird to even mention it! Apples and pears. ATST (my best fund) has delivered 31.6 / 42.8 / 82.8 on a TR basis over 1/3/5 years...but that's more apples and pears but better performance that VWRL. I only mention this as you want to bring global equities in to the discussion!

AndrewInDevon wrote:
Of my 8 holdings, Merchants has been the worse performing, although 8 months is nothing of course. But still, my renewables has outperformed it (just) as has my corporate bond fund. Factor in dividends then the gap is even more stark as my renewables and corporate bond fund are yielding more than Merchants.

So today I decided to dig deeper into Merchants. Mea culpa, I should have done this from the start of course, rather than just relying on marketing data and fact sheets. I am surprised that their 11th largest holding is (or was at the time of their last annual report) St James Place. I am not completely financially illiterate but even I know that much (not all), of the IFA sector is iffy to say the least. I long ago decided SJP was something to avoid when I was looking for an IFA a few years ago.

St James Place are -60% over the last 12 months! So this must be one of the main drivers behind Merchants recent poor performance. Ouch!

I will sit tight for now, but will look out for their next annual report with interest.

Gergel sold out of STJ in Nov 2023 although by then the shareprice of STJ had fallen quite a bit

https://www.investorschronicle.co.uk/ne ... s-s-place/


"St James’s Place accounted for 2.2 per cent of the trust’s portfolio as of 31 July 2023 and was one of its main underperformers in the previous six months. "

( my bold...the text would imply there were other contributors).

kempiejon wrote:

AndrewInDevon wrote: although 8 months is nothing of course.

Quite, history is helpful, over months CTY is the clear winner.

Handy charting here https://www.theaic.co.uk/companydata/me ... erformance

10 years
Merchants Trust Ord (Share Price TR) +82.65%
Merchants Trust Ord (NAV TR) +90.41% ×
City of London Ord (Share Price TR) +69.55% ×
City of London Ord (NAV TR) +79.70% ×

The graph in the link shows two things....for the vast majority of time there's nothing really in it between the 2 UK funds. But over the last 8 months or so they have diverged significantly - in favour of City. My hypothesis is that St James may be a reason for this given its lost 60% of its value over the last year.

Incidentally, in the data you've quoted above, City is not the clear winner as Merchants is ahead on price and NAV...unless you've made a transposition error in the table?

Comparative total returns over the last year.

Note: the AIC indicates MRCH gearing at 12% versus CTY's 6%.

https://www.theaic.co.uk/companydata/ci ... ment-trust
https://www.theaic.co.uk/companydata/merchants-trust


https://www.hl.co.uk/funds/fund-discoun ... ion/charts

AndrewInDevon wrote:Incidentally, in the data you've quoted above, City is not the clear winner as Merchants is ahead on price and NAV...unless you've made a transposition error in the table?

The graph can include comparators and vary time periods, it showed me that over months City was the clear winner, toggle the time period for 1 month, 3 months, 6 months, YTD and City clearly wins and indeed you found that in your holding period of 8 months.
But for 10 years Merchants wins, the text I copied.

monabri wrote:

Gergel sold out of STJ in Nov 2023 although by then the shareprice of STJ had fallen quite a bit

https://www.investorschronicle.co.uk/ne ... s-s-place/


"St James’s Place accounted for 2.2 per cent of the trust’s portfolio as of 31 July 2023 and was one of its main underperformers in the previous six months. "

( my bold...the text would imply there were other contributors).

That's helpful and news to me, thanks. So something else has caused the recent material divergence between Merchants and City. Mind you, both are put in the shade by IBIT and DJT

Investment Trusts can borrow to invest - " gearing". Get it right ( invest in companies that recover or do well) and gains are amplified. The converse is true.

Merchants gearing is 2x that if CTY. If they've borrowed and "not been lucky" with their choice it might go some way to explain their comparative performance. Then again, the manager might simply be holding more of this this years sinners? Just think of any fund holding 'oil' during the Covid pandemic when oil companies shareprices were in the doldrums. Some of the ITs held 'oil' at relatively high percentages.

All of which explains why, though fishing in the same pond, ITs can have differing results over differrent times.
They are not all equal, but there's little possibility of second guessing which will be better.

Arb.

Both City of London and Merchants Trust have a benchmark of the FTSE All Share total return.
Merchants has an 11% Gross Gearing, and its UK investment share is 104.9%. Its 5 year total return is 44.5%
City of London has a 6% Gross Gearing, and its UK investment share is (only) 89%. Its 5 year total return is 25%
The FTSE All Share total return over 5 years is 31.2%
As has been noted earlier, a total return world tracker has returned 74.1% over 5 years. So its somewhat troubling that City of London's ex-UK investments have not managed to boost its UK investments.
St James Place does not appear in either City of London nor Merchants Trust ITs. Data from Hargreaves Lansdown today.
My OH holds Merchants. Neither of us hold City of London.

As an income investor I hold both CTY and MRCH. Reliable dividend plodders.

What I like about dividend stocks as distinct from 'growth' stocks is that at least one gets the income.
If a growth stock doesn't grow, one gets nothing.

A while ago, for growth I bought Caledonia CLDN which has been fulsomely praised hereabouts, since when the SP has gone downwards, and the divi is piffling.
There's a lot to be said for reliable plodders.

V8

scotia wrote:Both City of London and Merchants Trust have a benchmark of the FTSE All Share total return.
Merchants has an 11% Gross Gearing, and its UK investment share is 104.9%. Its 5 year total return is 44.5%
City of London has a 6% Gross Gearing, and its UK investment share is (only) 89%. Its 5 year total return is 25%
The FTSE All Share total return over 5 years is 31.2%
As has been noted earlier, a total return world tracker has returned 74.1% over 5 years. So its somewhat troubling that City of London's ex-UK investments have not managed to boost its UK investments.
St James Place does not appear in either City of London nor Merchants Trust ITs. Data from Hargreaves Lansdown today.
My OH holds Merchants. Neither of us hold City of London.

I should have clarified that

St James Place does not appear in either City of London nor Merchants Trust ITs. Data from Hargreaves Lansdown today

. refers to their list of top ten investments (by size)

City publish a full list of their holdings. They currently hold St James Place, at 0.71% of their total portfolio (as at 29 Feb).

https://www.janushenderson.com/en-gb/uk-investment-trusts/trust/the-city-of-london-investment-trust-plc/documents/

...look under "Other Documents/Portfolio Disclosure"

AndrewInDevon wrote:They currently hold St James Place, at 0.71% of their total portfolio (as at 29 Feb).

So possibly twice that last year and a bit less by now. Down around 50% in 12 months and off 5% in the month. Well that what it did in my portfolio.

Personally I am not a fan of Trusts that chase yield, would prefer a balanced approach with a lower dividend.

88V8 wrote:As an income investor I hold both CTY and MRCH. Reliable dividend plodders.

What I like about dividend stocks as distinct from 'growth' stocks is that at least one gets the income.
If a growth stock doesn't grow, one gets nothing.

A while ago, for growth I bought Caledonia CLDN which has been fulsomely praised hereabouts, since when the SP has gone downwards, and the divi is piffling.
There's a lot to be said for reliable plodders.

V8

And at "our age", it isn't too important that there is a degree of erosion of capital. Better that than a collapsing share price and no dividend to live off.