MERCANTILE: The £2bn trust that’s invested in a diversified portfolio of 80 companies, all bar one, listed on the UK stock market
Investment manager Guy Anderson refuses to talk specifically about the damage that Neil Woodford has done to the reputation of the country’s asset management industry by suspending dealings in Equity Income and refusing to waive investor fees while he sorts out the mess he has got the fund into.
When pressed, all he will say is: ‘It is incumbent upon everyone working in the investment industry to ensure we are all trying to manage money in the best way for investors.’
But Anderson, an employee of JP Morgan Asset Management, is keen to stress that as manager of investment trust Mercantile, he does all he can to prevent his shareholders experiencing too many shocks to the system.
Mercantile is invested in a diversified portfolio of 80 companies, all bar one, listed on the UK stock market
‘Multiple layers of control’ are in place on the £2 billion fund, he says, that mean the assets are managed in a disciplined way, but allow every chance of the generation of ‘repeatable’ investment returns.
The trust is invested in a diversified portfolio of 80 companies, all bar one (unquoted business Tennants Consolidated) listed on the UK stock market.
In terms of risk control, no one stock can comprise more than 10 per cent of the trust’s portfolio, although the largest holding – specialist asset manager Intermediate Capital – is currently only just over three per cent.
Furthermore, the trust, together with other funds that JP Morgan Asset Management manages, is not allowed to collectively own more than 10 per cent of a company’s shares – a move designed to protect JP Morgan’s reputation as much as investors’ portfolios if a company it invests in were to go bust.
The final layer of protection is provided by the fund’s structure. Unlike Woodford Equity Income that is set up as an ‘open-ended’ fund with money flowing in and out all the time from investors wanting to buy and sell holdings, Mercantile is set up as an investment trust listed on the UK stock market.
This enables investors to trade shares whenever they want and means the trust would never have to offload investments in the way Woodford had to in order to meet redemptions from more investors wanting out than in.
The past performance numbers for Mercantile indicate that Anderson’s cautious approach is working. Over the past five years, Mercantile has delivered an overall return of nearly 58 per cent, compared to 34 per cent from the FTSE All-Share Index. Nothing spectacular – but with a quarterly dividend on top worth in the last financial year a total of 6.3p a share (the shares currently trade at £2.05).
Anderson’s modus operandi is to search for investment opportunities outside the FTSE 100. It means a portfolio that predominantly comprises mid and small cap sized companies although Anderson is quite happy to continue holding companies that eventually join the FTSE 100. Housebuilder Berkeley, insurer Phoenix, private equity specialist 3i, business turnaround specialist Melrose and engineer Spirax-Sarco are all FTSE 100 holdings.
Although Anderson admits the short-term outlook for the UK is uncertain because of the Brexit factor, global trade tensions and low consumer confidence, he believes that the economy is faring better than many experts expected – despite its contraction in April. One additional aspect of the trust that will appeal to investors is the low annual charge of 0.4 per cent.