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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
The Mercantile Investment Trust plc
-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
Overview of portfolio strategy
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.
Past performance is not a reliable indicator of current and future results.
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
Overview of portfolio strategy
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
Overview of portfolio strategy
… 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
Overview of portfolio strategy
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.
Past performance is not a reliable indicator of current and future results.
High quality business
Attractively valued
National Express – Total Return
Overview of portfolio strategy
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
Outlook and positioning
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
Outlook and positioning
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.
Past performance is not a reliable indicator of current and future results.
The UK looks cheap when compared with other markets
10-year cyclically-adjusted P/E ratio
Outlook and positioning
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
Outlook and positioning
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
Outlook and positioning
14
The Mercantile Investment Trust plc
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%
Outlook and positioning
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.
The Mercantile Investment Trust plc
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 (%)
Outlook and positioning
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.
The Mercantile Investment Trust plc
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
BenchmarkFTSE All-Share (ex FTSE
100, ex Inv Companies) (
Outlook and positioning
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.
The Mercantile Investment Trust plc
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
BenchmarkFTSE All-Share (ex FTSE
100, ex Inv Companies) (
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.
The Mercantile Investment Trust plc
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.
The Mercantile Investment Trust plc
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.
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
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