the mercantile investment trust plc agm - j.p. morgan · 3 | for agm use only the mercantile...

FOR AGM USE ONLY

The Mercantile Investment Trust plc

AGM

Discovering tomorrow’s market leaders

23rd May 2019

Guy Anderson, Portfolio Manager

The Mercantile Investment Trust

1 | FOR AGM USE ONLY

Agenda

Overview of trust strategy

Performance review

Outlook and positioning

Appendix



1 Fiscal year to 31st January 20192 At 31st January 2019, the Company had in issue a £3.85 million 4.25% perpetual debenture and a £175 million 6.125% debenture repayable on 25th February 2030.3 Quarterly dividend payments over twelve months to Jan 2018, yield based on share price 31st Jan 2019

Source: J.P. Morgan Asset Management. The above portfolio characteristics are shown for illustrative purposes only and are subject to change without notice.

Yield is not guaranteed and may change over time.

• Long term capital growth from a portfolio of UK mid and small cap companies

• Benchmarked against the FTSE All-Share ex. FTSE 100 ex. Investment Trusts

Investment Objective

• Ongoing charges1 0.45%

• Gearing range2 of -10% to +20%

• Dividend of 6.3p equivalent to a 3.3% net yield3 (+19% vs FY18)

• Active discount management

Key Features

• Specialist investment team

• Fundamental analysis

• Disciplined investment philosophy

Investment Approach

A Diversified Portfolio of UK Mid and Small Cap Companies



UK mid and small caps have outperformed large caps over the long term

Source (LHS): J.P. Morgan Asset Management, Bloomberg. All series are rebased to 100 as at 31st January 1993 to 31st January 2019. All indices in GBP and include reinvested dividends. 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.

Cumulative return with dividends reinvested

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Feb 93 Feb 98 Feb 03 Feb 08 Feb 13 Feb 18

FTSE 250 exIT FTSE 100



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 there a positive outlook?

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

Balancing expectations versus outcome



• Changing competitive landscape

• Pressure on returns and increased investment needs

• Maturing markets

• Market leader in each of their 13 marketplaces

• Consistently high cash flow conversion

• Significant growth potential from international markets

Just EatCase study: A changing investment case

Source: Bloomberg. Data from 2nd April 2014 to 31st December 2018

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. There can be no guarantee they will be met . 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 for current and future results.

100

200

300

400

500

600

700

800

900

1000

Apr 14 Dec 14 Aug 15 Apr 16 Dec 16 Aug 17 Apr 18 Dec 18

Invest at IPO

Purchase Purchase

Sale

Sale

SaleSale

Then

Now

Just Eat – Total Return



Performance review


80

90

100

110

120

130

140

150

160

170

180

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

NAV

Share price

FTSE All Share ex. 100 ex. IT

FTSE 100

Cumulative returns

Five year performance

Source: Thomson Reuters Datastream; Morningstar. Rebased to 100 as at 31st January 2014.

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. © Morningstar. All Rights Reserved. Past performance is not a reliable indicator for current and future results.

The Mercantile Investment Trust plc – 31st January 2014 to 31st January 2019

Performance review

+45%

+42%

+32%

+30%


Source: B-One, Xamin, J.P. Morgan Asset Management and Morningstar © Morningstar. All Rights Reserved. Data for year up to 31st January 2019

All figures are on a total return basis. Total return, debt at par value, net of fees, income reinvested. Benchmark is FTSE All-Share Index excluding FTSE-100 and Investment Trusts.

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

Financial year performance

Performance review


Largest contributors to performance

Source: J.P. Morgan Asset Management, Factset. (o) denotes overweight, (u) denotes underweight; period average. The Trust is an actively managed portfolio, 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 – 31st January 2018 to 31st January 2019

Relative Contribution %

Sector level attribution Stock level attribution

Relative Contribution %

Performance review

-1.5 -0.5 0.5 1.5

Banks (u)

Health Care Equip. & Serv. (u)

Industrial Metals & Mining (o)

Construction & Materials (o)

Nonlife Insurance (o)

Electricals (o)

Media (o)

Food & Drug Retailers (u)

Oil Equip., Serv. & Dist. (u)

Financial Services (o)

-1.5 -0.5 0.5 1.5

Metro Bank (u)

Evraz (o)

Indivior (u)

CYBG (u)

Spirax-Sarco Engineering (o)

Hikma Pharmaceuticals (o)

Jupiter Fund Management (o)

NEX (u)

Ocado (u)

Sophos (o)


Long term outperformance of UK mid and small caps

Source:Cumulative returns

0

200

400

600

800

1000

1200

1400

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

FTSE 250 ex ITs

EMIX Smaller Europe ex UK

S&P 500

Russell 2000

MSCI Europe ex UK

FTSE All Share

MSCI Emerging Markets

MSCI AC Asia Pacific ex Japan

TOPIX

Source: J.P. Morgan Asset Management, Thomson Reuters Datastream. All series are rebased to 100 as at 31 December 1993 to 31 March 2019. All indices in GBP and include reinvested dividends.

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.

… long term returns amongst the best in the world



Opportunities for extraordinary growth

Innovators or disruptors

Rapidly growing new markets

Grafton Group SSP

Nimble business models

Image source: Shutterstock. The securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.

Aveva



Value creation through M&A

Source: Liberum, Bloomberg. Data 1st January 2004 to 31st December 2018. To be included the transaction must have completed but the announcement date defines the year it is classified in.

Average % of index acquired in last 15 calendar years

2.0%

6.0%6.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

FTSE 100 FTSE 250 FTSE Small-Cap



Opportunities for active managers in under-researched companies

... Average of 17 analysts covering each FTSE 100 company

Average of 10 analysts covering each FTSE 250 company

Source: Liberum, Datastream. As at 31 December 2018

Rolling average analyst coverage by market cap

0

5

10

15

20

25

FTSE 100 FTSE 250 FTSE Small Cap

£m



-8

-6

-4

-2

0

2

4

6

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Source: Markit, ONS, Refinitiv Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Data as of 31 March 2019.

UK GDP

Contribution to UK real GDP growth

% change year on year

Average

since 2000Q418

1.9% 1.4%

Other components of GDP

Consumption



Personal income and consumer confidence

Source: Asda, GfK. Data from January 2014 to April 2019.

Asda Income Tracker & the GfK Consumer Confidence measure

... seeing a pickup in disposable income, but consumer confidence hasn’t yet followed

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Asda Income Tracker (% chg yoy) - LHS Gfk Consumer Confidence - RHS



Global Purchasing Managers’ Index (PMI) for manufacturing

GTM – Europe | Page 5

Source: Markit, J.P. Morgan Asset Management. The Global Purchasing Managers’ Index (PMI) assesses the economic health of the manufacturing sector by surveying output and employment intentions.

A score of 50 indicates that economic activity is neither expanding nor contracting, above 50 indicates expansion. The colours range from red to yellow to green, where red is below 50, yellow is at 50 and

green is above 50. Quarterly averages are shown, except the two most recent monthly data points. Past performance is not a reliable indicator of current and future results. Guide to the Markets - UK. Data

as of 31 March 2019.

50.6 50.6

50.4 50.0

50.6 51.0

49.3 47.5

51.5 49.7

47.6 44.1

47.7 47.4

49.9 50.9

54.2 54.7

54.0 53.9

52.5 52.8

55.4 50.3

52.1 55.1

53.0 52.4

48.9 49.2

49.9 50.8

50.1 51.2

47.2 48.8

46.3 49.0

54.3 52.6

53.4 52.8

52.6 49.8

50.1 52.8

2011 2012 20132008 2009 20102019

2014 2015 2016 2017 2018 '19

India

Indonesia

Greece

Germany

China

US

UK

Eurozone

France

Italy

Spain

Ireland

Japan

Korea

Global

Developed

Emerging

Taiwan

Mexico

Brazil

Russia

Switzerland

Sweden

Eu

rozo

ne

De

ve

lop

ed

Em

erg

ing

Feb Mar



Current portfolio positioning

Source: Factset. The fund is an actively managed portfolio. 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 March 2019 Benchmark FTSE All-Share ex 100 ex IT

Sector weighting

33%

27%

16%

10%

6%

5%

1%

1%

1%

0%

29%

27%

18%

8%

3%

4%

1%

4%

5%

2%

Industrials

Financials

ConsumerServices

ConsumerGoods

Technology

Basic Materials

Telecoms

Oil & Gas

Health Care

Utilities

Mercantile

Benchmark

Top 10 holdings Weight (%)

Bellway 3.6

Intermediate Capital 3.4

Spirax-Sarco Engineering 2.5

SSP 2.4

Grafton 2.4

Aveva 2.3

Beazley 2.1

B&M 2.0

Bodycote 2.0

Close Brothers 2.0

Top 10 24.6

Top 20 43.4

Top 50 82.1

Total number of holdings 85


Summary

Balanced portfolio reflecting near term macro uncertainty

Continued focus on stock specific opportunities

Structural reasons for long-term outperformance

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

Source: Bloomberg, J.P. Morgan Asset Management

The opinions and views expressed here are those held by the author as at 30th April 2019, which are subject to change and are not to be taken as or construed as investment advice.


Appendix


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

The Mercantile Investment Trust plc as of 30th April 2019

Annualised performance, net of fees (%)

Calendar year performance, net of fees (%)

Three months YTD Six monthsOne

year

Three

years

Five

years

Mercantile NAV (cum income, debt at par value) 11.07 19.35 10.44 2.34 10.89 9.70

Mercantile share price 9.32 19.60 10.23 0.41 10.80 9.35

FTSE All-Share ex. FTSE 100 ex. Investment Trusts 6.64 14.19 5.47 -1.90 7.60 6.72

Excess return (NAV) +4.16 +4.52 +4.71 +4.32 +3.06 +2.79

2012 2013 2014 2015 2016 2017 2018

Mercantile NAV (cum income, debt at par value) +31.3 +35.9 +1.1 +22.2 -1.7 +29.0 -15.1

Mercantile share price +33.3 +44.9 -4.2 +30.0 -3.7 +30.2 -17.1

FTSE All-Share ex. FTSE 100 ex. Investment Trusts +29.4 +35.7 +2.2 +12.1 +5.9 +17.9 -15.0

Excess return (NAV) +1.5 +0.1 -1.1 +9.0 -7.2 +9.4 -0.2


Benefits of mid & small cap strategy in an actively managed closed ended structure

Dividend policy smoothing income returnBenefits

…with the opportunity for active managers to add value in under-researched companies

Active use of gearing to

enhance returns

Liquid access to a less

liquid asset classNo inflows/ outflows

Independent Board of

Directors provide oversight

Dividend policy has

smoothed income for

shareholders

Higher disclosure

Share buybacks at a

discount to NAV accretive

to shareholders

Opportunity to buy shares

at a discount to NAV

Source: J.P. Morgan Asset Management. Past performance is not an indication of future performance. All figures based on the current trust total shares, after the 10 for 1 stock split in mid 2018.

Pence per share

0

1

2

3

4

5

6

7

8

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Dividend Special dividend

Earnings per share Net revenue reserves


1500

2500

3500

4500

5500

6500

7500

8500

-10%

-5%

0%

5%

10%

15%

20%

Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Jan 19 Apr 19

Series1 Series2

5 years' historic gearing levels vs. benchmark

Gearing

Source: DataStream, J.P. Morgan Asset Management

As at 30 April 2019 (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.

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

Gearing Level Index


Share price discount

Source: Bloomberg. Data from 31 March 2016 to the 31 March 2019. Past performance is not a reliable indicator for current or future results.


Net Asset Value (NAV) vs. Share Price

Premium/Discount to NAV (%)

100

150

200

250

Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18

Net Asset Value

Last Price

-20

-15

-10

-5

0

Mar '16 Sep '16 Mar '17 Sep '17 Mar '18 Sep '18


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 can hold up to 10% cash or utilise gearing of up to 20% of

net assets where appropriate.

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 companies.

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


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 Investor Disclosure Document, Key Features and Terms and Conditions and 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: 0903c02a825cb379

the mercantile investment trust plc agm - j.p. morgan · 3 | for agm use only the mercantile...

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