Merchants Trust (LON:MRCH) invests in a portfolio of primarily large-cap UK equities aiming to generate income and long-term capital growth. MRCH differentiates itself from its peers due to its high income and dividend growth – its dividend yield is consistently above the benchmark FTSE 100 index – and has 34 years of consecutive annual dividend growth. Near-term investment performance has improved; this is partly a function of rising bond yields as investors are starting to rotate away from expensive bond proxies and towards more cyclical, higher-yielding sectors of the UK stock market. MRCH is now outperforming its benchmark over five years. Gearing of up to 25% of net assets is permitted.
Investment strategy: Income, growth and valuation
Manager Simon Gergel runs a relatively concentrated portfolio of c 40-50 stocks selected for high and growing income with the potential for long-term capital growth. The investment process combines three elements: fundamentals, valuation and themes. MRCH’s portfolio is diversified by sector; currently the largest overweight exposures versus the benchmark are industrials, utilities and consumer services, while the largest underweight exposures are to consumer goods and basic materials. As well as offering a consistently higher dividend yield than the benchmark, MRCH’s compound growth in annual dividends is considerably higher than the growth in UK inflation over the long term (see Exhibit 10, page 7).
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