half image placement holder (horizontal) resize image to cover grey … · 2020-06-17 · portfolio...

HALF IMAGE PLACEMENT HOLDER (HORIZONTAL)Resize image to cover grey box

The Mercantile Investment Trust plc

May 2020

Guy Anderson, Portfolio Manager

1

Portfolio strategy

Outlook and positioning

Summary

Agenda

2

Portfolio strategy

3

Annualised return (net of fees) vs. benchmark

Mercantile: a pure-play* solution to UK mid and small cap investing

Source: (LHS) J.P. Morgan Asset Management; ADV = average daily volume (last 12 months), from Bloomberg; Ongoing charges reflect FY19 charges. Data as at 31 May 2020. Performance data

using net asset value per share, cum income, with debt at par value in GBP. Geometric excess returns. Please note Benchmark Indices do not include fees or operating expenses and are not available

for actual investment. Benchmark is the FTSE All-Share (ex FTSE 100, ex Investment Companies) Index. The benchmark is for comparative purposes only. * Pure play refers to the fact that this vehicle

provides investors with access to both mid and small cap in one vehicle. ^Small and medium sized firms

A diversified portfolio of mid and small cap companies with strong long-term relative performance


-7.6

-0.1

3.9

-11.4

-4.5

0.2

-15%

-10%

-5%

0%

5%

1 year 3 years (p.a.) 5 years (p.a.)

Mercantile Benchmark

Past performance is not a reliable indicator of current and future results.

Overview of portfolio strategy

Specialist Team

Team of 6 covering UK SMID^

14 years average industry experience

350+ management meetings per annum

Large and Liquid

Portfolio size £1.7bn

Liquidity ADV ~£3m

Low cost Ongoing charges 0.44%

Excess

return (%)+4.2 +4.6 +3.7

4

16.7%

28.0%

40.2%

0%

4%

8%

12%

16%

20%

24%

28%

32%

36%

40%

44%

2020

FTSE All Share ex 100 ex IT Index

NAV

Total Shareholder return

Performance for the year ended 31st January 2020

Past performance is not a reliable indicator of current and future results. Dividends are not guaranteed.Source: J.P. Morgan Asset Management. Data from 31 January 2019 to 31 January 2020, in GBP. NAV returns are net of fees and applicable charges, income reinvested, borrowings at par (debt

valued at maturity face value). Total shareholder return is change in the share price of Mercantile Investment Trust plc. Benchmark is FTSE All-Share ex 100 ex IT. Index return does not include fees or

operating expenses. The Benchmark is a point of reference against which the performance, risk characteristics or composition of the Investment Trust may be measured. However, the Investment Trust

will be managed without reference to its Benchmark.

2020 financial year performance

Benchmark return +16.7%

NAV +28.0%

Total Shareholder Return +40.2 %

Dividend +4.8% to 6.6p


5

90

140

190

240

290

340

Aug 12 May 13 Feb 14 Nov 14 Aug 15 May 16 Feb 17 Nov 17 Aug 18 May 19 Feb 20

NAV Share Price FTSE All Share ex 100 ex IT FTSE 100

Long term performance

Source:J.P. Morgan Asset Management. Rebased to 100 at 31 August 2012. Performance data has been using net asset value per share, cum income, with debt at par value in GBP. Please note

Benchmark Indices do not include fees or operating expenses and are not available for actual investment. ^Compound annual growth rate.


The Mercantile Investment Trust plc – 31 August 2012 to 31 May 2020

Cumulative returns

+111%

+139%

+76%

+43%

… 10.2% NAV CAGR^ over 7 years 9 months


6

0

1

2

3

4

5

6

7

8

9

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Dividend Special dividend Earnings per share Net revenue reserves

A strong track record of income generation

Dividend policy smoothing income return

Source: J.P. Morgan Asset Management. All figures based on the current trust total shares, after the 10 for 1 stock split in mid 2018. Data as at 31 January 2020. ^Compound annual growth rate

Past performance is not a reliable indicator for current and future results.

Pence per share


… 8.4% dividend per share CAGR^ over 29 years

7

Our investment philosophy

Rigorously identifying investments with specific characteristics

Is it a good business?

We consider the quality of the company through its profitability, sustainability of earnings and capital allocation discipline

Is it attractively valued?

We look at a company’s valuation to assess if its future prospects have been incorrectly estimated by the market

Is the outlook improving?

Assessing the operational momentum of the business and how is this being reflected in expectations

Balancing expectations versus outcome


8

0

50

100

150

200

250

2014 2015 2016 2017 2018 2019

National Express Benchmark

• Consistently cash generative

• Compelling market valuation

• Diversified end markets and limited regulatory risk

• Leading market positions

National Express

The investment process in action

Source: J.P.Morgan Asset Management, Bloomberg. Data from 31st December 2014 to 30th April 2020. The companies/securities above are shown for illustrative purposes only. Their inclusion should

not be interpreted as a recommendation to buy or sell.


High quality business

Attractively valued

National Express – Total Return


Promising outlook

• Steady organic revenue growth

• Optionality from continued positive M&A

Initial Purchase

Reduced positionAdded to position

Added to position

Added to position

Added to position

Reduced position

Added to position

9


10

Economic outlook: pandemic woes visible to all, outlook beyond unclear

Sources: top left chart: ONS, GfK, with data from January 2005 to April 2020; bottom left chart: Bloomberg, data from January 2005 to April 2020; top right chart: Panmure Gordon, data as of 30th April

2020; bottom right chart: Bloomberg, data from January 2015 to April 2020. Opinions, estimates, forecasts, projections and statements of financial market trends are based on market conditions at the

date of the publication, constitute our judgment and are subject to change without notice.

Past performance is not a reliable indicator of current and future performance.

UK retail sales and consumer confidence


UK Purchasing Managers Index

UK GDP growth forecasts for 2020 at historic lows

Brent crude oil price ($/barrel)

-15%

-10%

-5%

0%

5%

10%

1900 1920 1940 1960 1980 2000 2020

Real G

DP

, Y

oY

%

Outturn IMF PG & Co OBR NIESR

-40

-30

-20

-10

0

10

-32

-24

-16

-8

0

8

2005 2008 2011 2014 2017 2020

UK Retail Sales % YOY(LHS)

GFK ConsumerConfidence (RHS)

0

20

40

60

80

100

2015 2016 2017 2018 2019 202010

20

30

40

50

60

70

2005 2008 2011 2014 2017 2020

Manufacturing PMI

Services PMI

Construction PMI

11

UK equity valuations reflect this uncertainty

Source: Panmure Gordon Research. Data as at 30th April 2020. CAPE is the cyclically adjusted price-to-earnings ratio.


The UK looks cheap when compared with other markets

10-year cyclically-adjusted P/E ratio


0

10

20

30

40

50

2000 2005 2010 2015 2020

US 10Y CAPE UK 10Y CAPE EZ 10Y CAPE

12

Portfolio changes reflect this environment

First priority to reassess capitalisation of portfolio companies and all investment cases

Selectively exited from a limited number of holdings

Opportunistically trimmed or added to a number of positions

Participated in a number of placings to help recapitalise UK businesses

Turnover in line with historic monthly averages


Vast majority of portfolio unchanged

13

Historic gearing levels vs. benchmark

Gearing: selectively increased in April

Source: Bloomberg, J.P. Morgan Asset Management.

As at 31 May 2020 (weightings exclude cash/cash equivalents). Investment trusts may utilise gearing which will exaggerate market movements both down and up which could mean sudden and large

falls in value. For further details, please refer to the trust’s annual report and accounts. Gearing is the ability to borrow money to invest that money on behalf of the shareholders.

The Mercantile Investment Trust plc as of 31 May 2020

1000

2000

3000

4000

5000

6000

7000

8000

-10%

-5%

0%

5%

10%

15%

20%

May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 Nov-18 May-19 Nov-19 May-20

Month end gearing levels - LHS FTSE All Share ex 100 ex IT (total return index) - RHS


14


Portfolio positioning

Source: J.P. Morgan Asset Management, Factset. As of 31 May 2020. Portfolio weightings calculated as % of invested excluding cash. The portfolio is actively managed. Holdings, sector weights,

allocations and leverage, as applicable, are subject to change at the discretion of the Investment Manager without notice. Absolute positions are not adjusted for gearing.

Geographic revenue mix as of 31 May 2020

FTSE 100

United Kingdom

56%Emerging Markets

13%

North America

16%

Europe ex UK12%

Rest of World

3%


United Kingdom

23%

Emerging Markets

26%

North America

28%

Europe ex UK14%

Rest of World

9%

FTSE All-Share ex 100 ex IT

United Kingdom

54%

Emerging Markets

15%

North America

15%

Europe ex UK12%

Rest of World

4%

15

Portfolio positions

Source: J.P. Morgan Asset Management, Factset. The investment trust is actively managed. Holdings, sector weights, allocations and leverage, as applicable, are

subject to change at the discretion of the Investment Manager without notice.


as of 31 May 2020

6.8

3.8 3.83.5

2.7

-2.4 -2.6 -2.6 -2.7-3.2-4

-2

0

2

4

6

8

Software&

Comp.Serv.

H'h'Goods

&Home

Construct.

LeisureGoods

Construction&

Materials

FinancialServices

Health CareEquipment &

Services

REITs Pharma.&

Biotech.

RealEstateInvest.

&Serv.

Travel&

Leisure

Active and absolute sector positions

Portfolio

Weight (%)10.2 7.2 4.8 6.1 13.3 0.0 8.3 0.0 0.0 5.9

BenchmarkFTSE All-Share (ex FTSE

100, ex Inv Companies) (

Relative to benchmark (%)


16

Portfolio positions

Source: J.P. Morgan Asset Management, Factset. The investment trust is actively managed. Holdings, sector weights, allocations and leverage, as applicable, are

subject to change at the discretion of the Investment Manager without notice.


as of 31 May 2020

Top 10 overweight positions

Stock Portfolio weight (%) Benchmark weight (%) Relative position (%)

Games Workshop Group 4.2 1.0 3.3

Intermediate Capital Grp 3.1 0.0 3.1

Polymetal International 2.6 0.0 2.6

Bellway 3.8 1.2 2.6

Softcat 3.1 0.5 2.6

National Express Group 2.9 0.3 2.5

Spirax-Sarco Engineering 2.4 0.0 2.4

Computacenter 2.5 0.4 2.1

Avast 3.0 1.0 1.9

Dunelm Group 2.3 0.4 1.9

Total 29.9 4.8 25.0




17

Summary

18

Summary

Near-term outlook highly uncertain but reflected by depressed market valuations

Structural reasons for long-term outperformance of mid and small cap companies

Disciplined investment process, with portfolio positioned to navigate macro uncertainty

Periods of elevated volatility provide greater opportunities for active managers

Strong long-term investment performance versus benchmark and peers

The Mercantile Investment Trust plc provides a pure-play* solution to UK mid and small cap investing

Summary

* Pure play refers to the fact that this vehicle provides investors with access to both mid and small cap in one vehicle.

19

Appendix

20

Financial year performance attribution

Source: Factset. Data is gross of fees in GBP. Attribution results are for indicative purposes only. The portfolio is actively managed. Holdings, sector weights,

allocations and leverage, as applicable, are subject to change at the discretion of the Investment Manager without notice. Past performance is not a

reliable indicator of current and future results.


for 1 year ending 31 January 2020

Top 10 detractorsRelative

weight (%)

Stock

return (%)

Impact

(%)

Vesuvius 1.43 -19.92 -0.75

Amigo Hldg 0.43 -69.43 -0.74

IWG Not Held 100.80 -0.43

SSP Group 1.82 -2.03 -0.40

GVC Holdings -0.44 38.33 -0.39

Pennon Group Not Held 52.88 -0.37

Ferrexpo 0.45 -40.54 -0.34

Sophos Group -0.30 -11.57 -0.33

Meggitt -0.81 -3.79 -0.33

IG Group Holdings -0.48 -19.69 -0.32

Top 10 contributorsRelative

weight (%)

Stock

return (%)

Impact

(%)

Gearing -10.01 0.00 1.95

Intermediate Capital Grp 3.26 77.69 1.65

Games Workshop Group 1.84 127.15 1.48

AVEVA Group 2.43 82.56 1.30

Softcat 1.91 71.11 0.91

JD Sports Fashion 1.60 78.07 0.85

Tullow Oil Not Held -74.56 0.85

Bellway 2.69 47.19 0.83

Spirax-Sarco Engineering 2.19 41.07 0.77

Computacenter 1.47 75.80 0.72

Attribution summaryStock: 14.82

Sector: 1.05



Stock attribution

21

Absolute and excess returns (net) versus FTSE All Share ex. 100 ex. ITs index

Calendar year performance

Source: J.P. Morgan Asset Management. GBP, as at 31 December 2019. Geometric excess returns. Performance data has been calculated on NAV to NAV basis (cum income, debt at PAR value),

including ongoing charges and any applicable fees, with any income reinvested, in GBP. Please note Benchmark Indices do not include fees or operating expenses and are not available for actual

investment.

Past performance is not a reliable indicator for current and future results.


NAV excess

(%)+9.0 -7.2 +9.4 -0.2 +7.7

22.2%

-1.7%

29.0%

-15.1%

38.9%

30.0%

-3.7%

30.2%

-17.1%

53.9%

12.1%

5.9%

17.9%

-15.0%

28.9%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

2015 2016 2017 2018 2019

NAV Share price Benchmark

Benchmark FTSE All-Share ex 100 ex IT

Appendix

22

Rolling period performance

Source: J.P. Morgan Asset Management. Geometric excess returns. Performance data has been calculated on NAV to NAV basis, including ongoing charges and any applicable fees, with any income

reinvested, in GBP. Figures greater than 1 year have been annualised. Past performance is not a reliable indicator of current or future results.

The Mercantile Investment Trust plc as of 31 May 2020

Performance, net of fees (%)

Calendar year performance, net of fees (%)

Three months Six monthsOne

year

Three

years p.a.

Five

years p.a.

Mercantile NAV (cum income, debt at par value) -14.8 -17.8 -7.6 -0.1 3.9

Mercantile share price -18.3 -19.1 -3.3 2.0 5.2

FTSE All-Share ex. FTSE 100 ex. Investment Trusts -14.6 -20.0 -11.4 -4.5 0.1

Excess return (NAV) -0.2 +2.7 +4.2 +4.6 +3.7

2015 2016 2017 2018 2019

Mercantile NAV (cum income, debt at par value) 22.2 -1.7 29.0 -15.1 38.9

Mercantile share price 30.0 -3.7 30.2 -17.1 53.9

FTSE All-Share ex. FTSE 100 ex. Investment Trusts 12.1 5.9 17.9 -15.0 28.9

Excess return (NAV) +9.0 -7.2 +9.4 -0.2 +7.7

Appendix

23

Share price discount

Source: Bloomberg. Data from 31 May 2017 to the 31 May 2020. Past performance is not a reliable indicator of current or future results.


Net Asset Value (NAV) vs. Share Price

Premium/Discount to NAV (%)

150

200

250

300

May-17 Nov-17 May-18 Nov-18 May-19 Nov-19

Net Asset Value

Last Price

-20%-15%-10%

-5%0%5%

10%15%

May '17 Nov '17 May '18 Nov '18 May '19 Nov '19

Appendix

24

Investment objective and risk profile

The Mercantile Investment Trust plc (the Company)

Investment objective

The Company aims to achieve capital growth through investing in a diversified portfolio of UK medium and smaller companies. It pays quarterly

dividends and aims to grow its dividend at least in line with inflation. The Company’s gearing policy is to operate within a range of 10% net cash

to 20% geared.

Key Risks

External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds could decline at the same

time, or fluctuate in response to the performance of individual companies and general market conditions.

This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down.

This Company may also invest in smaller companies which may increase its risk profile.

The share price may trade at a discount to the Net Asset Value of the Company.

The single market in which the Company primarily invests, in this case the UK, may be subject to particular political and economic risks and,

as a result, the Company may be more volatile than more broadly diversified company's.

Companies listed on AIM tend to be smaller and early stage companies and may carry greater risks than an investment in a Company with a

full listing on the London Stock Exchange.

The key risks facing the Company and the mechanisms in place to monitor and measure these risks are set out in the Company’s annual

report, a copy of which is available from its website, www.jpmam.co.uk/investmenttrust.

Please refer to the Investor Disclosure Document, latest annual report, and Key Information Document (KID) for more information relating to the Company.

http://www.jpmam.co.uk/investmenttrust

25

Important information

This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to

buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has

been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as

additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market

trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They

are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change

without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market

conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value,

price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no

guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can

be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase &

Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with

our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance

with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy.

Investment is subject to documentation. The Annual Reports and Financial Statements, AIFMD art. 23 Investor Disclosure Document and PRIIPs Key Information

Document can be obtained free of charge from JPMorgan Funds Limited or www.jpmam.co.uk/investmenttrust. This communication is issued by JPMorgan Asset

Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered

address: 25 Bank Street, Canary Wharf, London E14 5JP.

Material ID: 0903c02a8290ea52

http://www.jpmorgan.com/emea-privacy-policy

http://www.jpmam.co.uk/investmenttrust

half image placement holder (horizontal) resize image to cover grey … · 2020-06-17 · portfolio...

Documents