Investment trust insider on Merchants Trust – James Carthew: Has Merchants Trust gone off track?
Merchants has started to derate as performance trails way behind fellow value-focused UK income trust Temple Bar.
I have been writing the column for quite a few years now but there are still a few trusts that I have not covered in detail. One of these is Merchants (MRCH), a well-known UK equity income trust with an £818m market capitalisation.
One reason I have not given Merchants much attention is that for many years it has tended to trade at a premium. Wobbles in the rating in March 2024 and February this year did not amount to much, but now the share price discount to net asset value (NAV) has been on a widening trend since April and currently stands at nearly 8%. That feels on the wide side for a trust that is 95% large and mid-cap stocks. I think that the last time the discount was this wide was back in October 2016.
Over five years, NAV total returns generated by the underlying portfolio still rank third in the sector – behind Temple Bar (TMPL) and Law Debenture (LWDB) – but more recently it has been slipping down the peer group table; over one year Merchants ranks 11th of 18 trusts. Merchants’ latest factsheet, as at end June 2025, has its three-year NAV returns lagging its All-Share benchmark by 8.6 percentage points.
On the income front, the trust’s 5.3% dividend yield is at the higher end of those available in the sector. Dividends have grown every year for 43 consecutive years and that seems unlikely to change. While, like many other trusts, it dipped into revenue reserves to maintain that track record through the Covid years, more recently it has been rebuilding those reserves (now enough to cover about eight months of the dividend).
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