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.
Have another question for Guy? Leave a comment below.
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.
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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