JPM Fund Manager

Q&A: Managing the largest UK equity investment trust

Guy Anderson answers the top five things you want to know about managing The Mercantile Investment Trust.

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Oct 26, 2017
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At a recent event, we asked Advisers to put their top questions to Guy Anderson, portfolio manager of The Mercantile Investment Trust – the largest investment trust focused on UK equities1.

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Are UK mid-caps essentially the same thing as UK Plc?

Absolutely not—and there are two main reasons why. First, there’s a common misconception that the mid- and small-cap space is exposed to the UK alone. In actual fact, these companies generate more than 45% of their revenues from outside the UK. And second, mid- and small-caps don’t just grow in line with the economy; instead, they are a particularly dynamic group of companies. As an example, Mercantile invests in several “disruptor” companies—like Moneysupermarket.com and B&M—which we believe will grow faster than their respective markets.

What’s driving the outperformance of UK mid- and small-caps vs. large-caps?

UK mid- and small-caps have outperformed their larger counterparts over the longer term—both in the UK and internationally. We believe this is underpinned by two key structural factors: first, these companies are at an early stage in their lifecycle so tend to be high growth with flexible business models and more adaptable to changing environments; second, their smaller size gives them the power both to make meaningful acquisitions more easily/cheaply, and to be acquired themselves, with the associated premium on top.

What’s behind The Mercantile Investment Trust’s actively managed approach?

Many institutional funds can only own a certain amount of any one company in their portfolios, and can only invest in a limited proportion of smaller companies. As a result, smaller companies tend to be less well researched than their larger counterparts, with lower information efficiency. And that opens up a great opportunity for our specialist teams to add value through an actively managed approach.

At a stock level, how do you separate the winners from the losers?

Our four-person, specialist investment team follows a rigorous investment process to identify our highest-conviction stocks. But we firmly believe that investment process needs to be backed up by a real hands-on approach to the stocks we invest in, so we attend more than 300 management meetings every year for an unparalleled, on-the-ground insight into those names.

The Mercantile Investment Trust is a large, liquid investment trust. Does that also mean it’s expensive?

The Mercantile Investment Trust plc is one of the leading UK equity trust, with assets over GBP 2 billion2. Its shares are also highly liquid, with an average daily volume of more than GBP 4 million. But it’s also a very cost-effective way to access a diversified portfolio of mid- and small-caps, with ongoing charges of 0.48%, and a stated policy of reducing those charges by a further 5bps.

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1Source: The Association of Investment Companies as at 30 September 2017. Data provide by Morningstar © Morningstar. All Rights Reserved.2Source: J.P. Morgan Asset Management, 30 September 2017.

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Go to the profile of Guy Anderson

Guy Anderson

Fund Manager, The Mercantile Investment Trust plc, J.P. Morgan Asset Management

Guy Anderson is portfolio manager of The Mercantile Investment Trust within J.P. Morgan Asset Management's UK Equity team.

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