The Mercantile Investment Trust plc Investment Trust Adviser Seminar

Transcription

1 The Mercantile Investment Trust plc Investment Trust Adviser Seminar October 2015 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

2 Agenda Overview of fund strategy Benefits of investment trust structure Results and outlook 1 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

3 Overview of fund strategy 2 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

4 Overview of fund strategy The Mercantile Investment Trust plc A Diversified Portfolio Of UK Mid and Small Cap Companies Portfolio objective Long term capital growth from a portfolio of UK medium and small sized companies Benchmarked against FTSE All Share ex. FTSE 100 ex. IT Portfolio features Typical number of holdings ~125 Typical value distribution 85% mid cap, 15% small cap Typical tracking error 3% - 5% p.a. Fund size GBP 2,025m Total expense ratio 0.49% Gearing range¹ -10% to +20% Dividend Dividend paid quarterly (41p in year to January 2015) 41p equivalent to a 2.4% yield Reserves of 22p per share Discount and liquidity Active discount management to reduce volatility of discount Up to 14.99% of the company can be repurchased annually Average daily value traded for last 12 months 1.7m As at 30 th September The targets and aims provided above are the Investment Manager s targets and aims only and are not necessarily part of the Fund s investment objectives and policies as stated in the prospectus. There is no guarantee that these will be achieved. Past performance is not an indication of future performance. The above portfolio characteristics are shown for illustrative purposes only and are subject to change without notice. ¹ Gearing facilities consist of 175m 6.125% debenture repayable 2030 and 3.85m 4.25% perpetual debenture 3 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

5 Overview of fund strategy Mid and small caps provides breadth of opportunity and true domestic exposure Stocks by index weight Sectors by index weight Revenue by geography FTSE 100 7% 6% 5% 4% 3% 2% 1% 0% 10 largest stocks = 38% of index 20 largest stocks = 60% of index Oil & gas Banks Pharma 5 largest sectors = 49% of index RoW, 12% ME & Africa, 5% Asia, 14% Americas, 26% UK, 26% Europe, 17% FTSE 250 7% 6% 5% 4% 3% 2% 1% 0% 10 largest stocks = 13% of index 20 largest stocks = 23% of index 5 largest sectors = 30% of index Asia, 6% Americas, 13% ME & Africa, 4% with the opportunity for active managers to add value in under-researched companies Europe, 17% RoW, 9% UK, 52% Source: Bloomberg, company data RoW = Rest of World, ME = Middle East GICS industry name, based on index weightings as at 30 th September 2015; FTSE 250 shown excluding investment trusts 4 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

6 Overview of fund strategy UK mid and small caps have outperformed large cap over the long term Cumulative return with dividends reinvested Distribution of annual relative returns Return NSC 1000 NSCI All Share Source: Numis/ Paul Marsh and Elroy Dimson London Business School. Total return index, Log scale NSCI = Numis Smaller Companies Index. The NSCI 1000 covers the bottom two percent of the UK equity market by value (ex Investment Trusts), The NSCI covers the bottom ten percent of the UK equity market. Data to 31st December Past performance is not an indication of future performance 11,161 4, Year Number NSCI return minus All-Share return % 5 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

7 Overview of fund strategy Experienced, stable and dedicated investment team The Mercantile Investment Trust Anthony Lynch, Portfolio Manager Industry Experience: 6 years (6 years on The Mercantile IT) Martin Hudson, Portfolio Manager Co-lead manager Industry Experience: 40 years (21 years on The Mercantile IT) Guy Anderson, Portfolio Manager Co-lead manager Industry Experience: 13 years (3 years on The Mercantile IT) Timothy Lewis, Investment Analyst Industry Experience: 3 years (2 years on The Mercantile IT) Dedicated fundamental research Analytical resource to research >300 companies, covering the full breadth of sectors Supported by 40+ investment professionals as part of the JPMorgan European Equity Group Capability to assess new market opportunities 300+ meetings with company management per annum Three UK mid/small cap specialist dealers Managers as at 30 th September There can be no assurance that the professionals currently employed by J.P. Morgan Asset Management will continue to be employed by J.P. Morgan Asset Management or that the past performance or success of any such professional serves as an indicator of such professional's future performance or success. 6 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

8 Overview of fund strategy Consistent investment philosophy Looking for stocks with one or more of the following characteristics Characteristic Sought Attractively valued assets Sustainable competitive advantages operating in attractive end markets Companies going through periods of positive change Commonalities Appropriately funded businesses Run by strong management teams Focused on shareholder value Balancing expectations versus outcome 7 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

9 Overview of fund strategy Ricardo a small company with a long time horizon Business Model Automotive and environmental consultant Expanding into other transportation and geographic markets Industry Dynamics Step-up in rate of change in fuel economy and green house gas standards Potential for a unilateral China- US deal later this year Cyclical recovery in automotive R&D budgets Market Expectations Better than expected recent order trends supportive to near term revenue expectations Substantial bidding pipeline The information in this case study is intended as an example only and should not be construed as advice, it may not be suitable for your particular circumstances and if you are unsure of the suitability of any investment you should seek financial advice. Past performance is not a guarantee of the future. Any opinions and views expressed here are those held by the author as at date of this document, which are subject to change and are not to be taken as or construed as investment advice. J.P. Morgan Asset Management may or may not hold positions on behalf its clients in any or all of the aforementioned securities. As at 30 th September 2015 Ricardo (total return) - RHS Source: The Innovation Center for Energy & Transportation, DataStream 30 th September Financials and Valuation Trading in line with the market despite better growth prospects Potential for acquisitions to further accelerate growth 8 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

10 Benefits of investment trust structure 9 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

11 Benefits of investment trust structure Active use of gearing to enhance returns Historic gearing levels vs. benchmark 20% Gearing Level Index Return % % % % % % 1500 Sep 07 Mar 08 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14 Sep 14 Mar 15 Sep 15 Month end gearing levels - LHS FTSE All Share ex 100 ex IT (total return index) - RHS Source: Datastream, J.P. Morgan Asset Management to 30 th September 10 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

12 Benefits of investment trust structure Long term capital may benefit from illiquidity premium Average value of stock traded per company per day vs. five year total return Net flows make it difficult for open ended funds to take advantage of this opportunity m 5 year total return % +85% +89% % 5% 0% -5% Net flows as % AuM -3% -1% -5% -3% 8% -4% 0% 40-10% FTSE 100 FTSE 250 FTSE SmallCap -15% -20% -15% * Source: Bloomberg, Datastream Weighted by index weight ex. investment trusts Based on 30 day average volume and price as at 7 th October 2015 Source: Morningstar 1 January August Morningstar. Data based on companies classified in UK small cap and UK mid cap peer groups as per Morningstar universe. Data as at 31 August Morningstar rankings/universe: Morningstar. All Rights Reserved. 11 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

13 Benefits of investment trust structure Buying shares at a discount makes financial sense Share price discount to NAV Discount 0% -2% -4% -6% -8% -10% -12% -14% -16% -18% -20% Discount Buyback Source: Bloomberg. Five years to 6 th October Discount to NAV (debt at par). Past performance is not an indication of future performance. 12 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

14 Benefits of investment trust structure Dividend policy has smoothed income for shareholders Earnings per share vs. dividend per share 50 Pence Dividend Special dividend Earnings per share Source: J.P. Morgan Asset Management. Past performance is not an indication of future performance. 13 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

15 Benefits of investment trust structure Investment trusts are independent listed companies Independent Board of Directors provide oversight High levels of disclosure Access to fund managers 14 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

16 Results and outlook 15 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

17 Results and outlook Three year performance The Mercantile Investment Trust 30 th September 2012 to 30 th September 2015 Cumulative returns NAV Share price FTSE All Share ex.100 ex. ITs Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Source: J.P. Morgan Asset Management. Thomson Reuters Datastream. Rebased to 100 as at 30 th September GBP. NAV total return net of fees and mid-share price, past performance is not a guide to the future. 16 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

18 Results and outlook Performance The Mercantile Investment Trust to 30 September 2015 Excess returns (net) versus FTSE All Share ex. 100 ex. ITs index 12.0% 10.0% 8.0% 6.0% 6.6% 10.7% 5.7% 8.4% NAV Share price 4.0% 2.0% 0.0% 3.5% 1.5% 1.7% 1.2% 0.6% 0.3% YTD 1 year 3 years (pa) 5 years (pa) 10 years (pa) NAV (%) Share price (%) Benchmark (%) Source: J.P. Morgan Asset Management. NAV net of fees and mid-share price, past performance is not a guide to the future. Excess returns are calculated geometrically. 17 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

19 Results and outlook UK cyclical indicators are positive for consumers Rising wages & falling inflation lifting household spending power Monthly Asda Income Tracker Absolute disposable income & YoY % change Retail sales growth (ex. fuel) YoY % change & 3 month moving average 6% 4% 2% 0% -2% -4% Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 YoY % change 3 per. Mov. Avg. (YoY % change) Source: ASDA Source: ONS As at 31 st August 2015 The ASDA income tracker for average family spending power is constructed by taking total household income, subtracting taxes and non-discretionary living costs (e.g. bills, transport, clothing, housing repairs) 18 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

20 Results and outlook Current portfolio positioning reflects these macro views Sector exposure Example holdings in domestic consumer facing stocks Consumer Services Financials Industrials Consumer Goods Technology Basic Materials Health Care Oil & Gas Utilities Telecommunications 9% 6% 4% 4% 1% 4% 1% 4% 0% 4% 0% 1% 0% 1% 30% 22% 29% 26% 26% 27% Mercantile Benchmark Overweight consumer, underweight resources Source: J.P. Morgan Asset Management, Factset As at 30 th September 2015 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 19 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

21 Results and outlook Summary Capital growth from a portfolio of UK medium and small sized companies Well resourced team covering the full breadth of investment opportunities Investment trust structure well suited to investing in medium and small sized companies Positive on prospects for UK economy and particularly consumer cyclicals The opinions and views expressed here are those held by the author as at 30 th September 2015, which are subject to change and are not to be taken as or construed as investment advice 20 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

22 The Mercantile Investment Trust plc For Professional Clients only not for Retail use or distribution. This is a promotional document and as such the views contained herein are not to be taken as an advice or 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 product(s) or underlying overseas investments. Both past performance and yield may not be a reliable guide to future performance. 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 product(s), 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. You should note that if you contact J.P. Morgan Asset Management by telephone those lines may be recorded and monitored for legal, security and training purposes. You should also take note that information and data from communications with you will be collected, stored and processed by J.P. Morgan Asset Management in accordance with the EMEA Privacy Policy which can be accessed through the following website Investment is subject to documentation (Investment Trust Profiles and Key Features and Terms and Conditions), copies of which can be obtained free of charge from JPMorgan Asset Management Marketing Limited. Issued by JPMorgan Asset Management Marketing Limited which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: Registered address: 25 Bank St, Canary Wharf, London E14 5JP. Investments in smaller companies may involve a higher degree of risk as these are usually more sensitive to price movements. 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. 21 FOR PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION