The Merchants Trust PLC

Transcription

1 The Merchants Trust PLC As focused on dividends as you are. INVESTING INVOLVES RISK. THE VALUE OF AN INVESTMENT AND THE INCOME FROM IT MAY FALL AS WELL AS RISE AND INVESTORS MAY NOT GET BACK THE FULL AMOUNT INVESTED.

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3 The Merchants Trust PLC The Merchants Trust PLC For many people seeking to grow their savings, generate income or plan for the future, the years since the financial crisis have proved testing. Interest rates on savings accounts have plummeted. The UK recently entered its sixth year with the bank base rate at 0.5%. Initially, government and corporate bonds offered a useful alternative but the overwhelming demand for these securities has driven prices up and yields down. But investing in the stock market can pose challenges. Share prices can be volatile in the short term and judging which companies offer the best potential can be difficult. And not every business will pay regular dividends to its shareholders. Investing in several companies can spread the risk but the more shares bought and sold, the greater the dealing costs and other fees which eat away at the investment. Collective investment schemes or companies have the potential to offer solutions to these challenges. The Merchants Trust PLC is an investment trust which invests in a portfolio of UK equities with the aim of paying a regular and rising dividend together with capital growth for its shareholders. So Merchants could be an attractive proposition for investors looking to save for the future or supplement their income, whether for everyday living, for future expenses such as school or university fees, or for planning for retirement. Please note that investment trusts are quoted companies listed on the London Stock Exchange. Their share prices are determined by factors including the balance of supply and demand in the market, which means that the shares may trade below (at a discount to) or above (at a premium to) the underlying net asset value. 1

4 The Merchants Trust PLC As focused on dividends as you are The Merchants Trust PLC has, for many years, focused on a simple proposition to deliver a high and rising income together with capital growth for its shareholders. Established in 1889, Merchants has recently celebrated its 125th anniversary. Today the trust invests in a diversified portfolio of large, wellestablished and well-known UK companies. The trust s portfolio manager, Simon Gergel, has 27 years of experience in managing UK equity income investments and is Chief Investment Officer of UK Equities at Allianz Global Investors. Merchants looks for companies that are well run, with a good valuation, a strong balance sheet and, importantly, have the potential to pay attractive dividends. These companies are able to increase the prices of their goods and services over time or cut costs in order to preserve or improve their profit margins. This enables them to maintain and increase their dividends in line with or in excess of inflation. The UK stock market is a good environment in which to invest as many of the companies listed on the London Stock Exchange have business activities worldwide. This provides Merchants shareholders with exposure to global revenues whilst benefitting from the UK s leading corporate governance standards. Investors are focused on real returns on their income from savings and investments. The Merchants Trust is an example of a long-established investment that has fulfilled its principal objective of delivering a regular quarterly payment which has grown over time. Simon Gergel, Portfolio Manager Although income is not guaranteed and could go down as well as up, Merchants has paid increasingly higher dividends to its shareholders year-on-year for the last 33 years Dividend per share history (pence) 1 4.2p 1982 Discrete performance 2 (%) 2 One year to Share price FTSE

5 33 consecutive years of dividend growth The prospect of regular dividends may be attractive to investors looking to boost their income, but they also need dividends to increase over time if they are going to be able to keep up with rising prices. As an investment trust, Merchants is an independent company listed on the London Stock Exchange. The Merchants board is particularly experienced and is as focused on dividends as the shareholders whose interests it safeguards. Although income is not guaranteed and could go down as well as up, Merchants has paid increasingly higher dividends to its shareholders year-on-year for the last 33 years from 4.2 pence per share in 1982 to 23.8 pence per share in One of the advantages Merchants has in seeking to provide this rising income is how it is able to manage its dividends. Investment trusts have a structural advantage which allows them to allocate up to 15% of their investment income in good years to a revenue reserve. The huge benefit of having these reserves is that trusts can draw on them to help smooth out their own dividends during periods when the companies they invest in may be finding it difficult to keep up their dividend payments. Open-ended funds, on the other hand, are required to pay out all of the income they receive from their underlying investments in the year that it arises so if dividends fall their income payments will have to follow suit. Another advantage is that, unlike open-ended investment funds, Merchants has a fixed number of shares. This means that portfolio manager Simon Gergel does not have to sell holdings as a result of redemptions. Instead, he is able to make portfolio decisions purely in terms of achieving investor objectives. 23.8p 2015 Past performance is not a reliable indicator of future results. 1 Source: The Merchants Trust Report and Accounts, to year-end Source: Lipper, percentage growth, mid to mid, total return, to Discrete performance figures comply with the Financial Conduct Authority s regulations to enable investors to compare different products from different providers. 3

6 The Merchants Trust PLC Meet the portfolio manager The portfolio manager of The Merchants Trust PLC is Simon Gergel, Allianz Global Investors Chief Investment Officer of UK Equities, who has run the portfolio since He has the responsibility for deciding which shares to buy and sell in order to maintain the trust s rising income. Simon explains some of his criteria for deciding which shares to buy: The dividend must be at least in line with the market or expected to be there within 18 months. However, dividend yield is not the only reason I buy or sell a stock. I look for companies with strong cash flows and good fundamentals. I look at their balance sheets and management and I also look to pay a reasonable price for the shares. Simon invests in approximately 40 to 50 companies that meet his strict investment criteria. He says that he doesn t struggle to find shares with adequate yields and believes investing in these stocks is a good discipline. He points out Research has shown that, on average, higher-yielding shares outperform others over the long term. One of the reasons for this it that looking for higher yields encourages investors to be contrarian, Simon explains: It means I tend to buy shares when they are cheap and out of fashion. When share prices rise, it gives the trust s capital value a boost. Although Simon is primarily looking for good companies with reliable cash flows that enable them to pay dividends, he also considers various investment themes and economic factors when choosing his investments. This enables him to assess market trends and to invest for the long term. When it comes to deciding on the dividends to be paid to shareholders in Merchants, Simon says it is the trust s board which has the final decision. He points out the trust s reserves meant that it was able to continue increasing the dividend even after the financial crisis resulted in some of the companies it invested in having to cut theirs. Now Merchants dividend is covered again and it still has a year s worth of dividends in reserve for future smoothing. These opinions are based on information which we believe to be accurate and reliable as at June However, these opinions may change without notice. 4

7 Introducing Allianz Global Investors The Merchants Trust is the largest investment trust managed by Allianz Global Investors, an investment specialist managing EUR 387 billion 1 in assets for individuals, families and institutions worldwide. Allianz Global Investors uses specialised in-house researchers around the world to carry out in-depth analysis across economic and industrial sectors. These analysts conduct over 5000 meetings each year with companies that represent potential investments, feeding back their insights to the portfolio managers and their teams. Merchants portfolio manager Simon Gergel also benefits from a special resource called Grassroots SM Research, offering insight that extends far beyond fundamental analysis. Grassroots SM Research is a division within the Allianz Global Investors group of companies that commissions investigative research for asset management professionals. Research data used to generate Grassroots SM Research reports are received from reporters and field force investigators who work as independent, third party research providers, supplying research that is paid for by commissions generated by trades executed on behalf of clients. Portfolio Manager Simon Gergel with the UK Equity team Allianz Global Investors around the world Allianz Global Investors employs more than 500 investment professionals in 23 cities in 18 countries: 1 Global centres of investment expertise Investment and client service offices As at

8 The Merchants Trust PLC Meet the Merchants board Merchants is run by an independent board of directors looking after shareholder interests. The Merchants board possesses a wealth of experience in business, law and investment management. Simon Fraser, Chairman Mr Fraser is Chairman of Foreign & Colonial Investment Trust PLC and Chairman of The Investor Forum and is a non-executive director of Ashmore Group plc, Fidelity European Values PLC and Fidelity Japanese Values PLC. He spent his career at Fidelity International Limited, where he held a number of positions, including Chief Investment Officer from Mary Ann Sieghart Mrs Sieghart is Chair of the Social Market Foundation, a non-executive director of Henderson Smaller Companies Investment Trust PLC and a director of DLN Digital Ltd. She is a political journalist and broadcaster and was formerly Assistant Editor of The Times, a Lex Columnist at the Financial Times and City Editor of Today. Mike McKeon, Audit Committee Chairman and Senior Independent Director Mr McKeon, a Chartered Accountant, was Group Finance Director of Severn Trent Plc until his retirement from the board in Prior to that he was Group Finance Director of Novar plc. He held various senior positions at Rolls-Royce plc from 1997 to He has extensive experience from a number of overseas roles. Sybella Stanley A barrister, Mrs Stanley is Director of Corporate Finance at RELX Group plc (formerly Reed Elsevier), where she manages RELX Group s global mergers and acquisitions programmes, and is a Member of the Department of Business, Innovation and Skills Industrial Development Advisory Board. Previously she was a member of the M&A advisory teams at, successively, Citi and Barings. Paul Yates Mr Yates is Chairman of the Advisory Board of 33 St James s Limited and is a non-executive director of Aberdeen UK Tracker Trust plc. He has had a long career in investment management at Samuel Montagu & Co, Phillips and Drew and UBS. He was CEO of UBS Global Asset Management (UK) Limited between 2001 and

9 The Merchants Trust has a long and distinguished history of focusing on income for its shareholders. In today s low interest rate environment this, combined with Allianz Global Investors investment expertise and the ongoing dedication and responsibility of the board of directors, make The Merchants Trust a compelling proposition. Simon Fraser, Chairman The Merchants Trust has significant income reserves. In addition the underlying portfolio has a yield significantly above the yield on the FTSE 100 Index Mike McKeon, Audit Committee Chairman The board of The Merchants Trust PLC 7

10 The Merchants Trust PLC Investing for the long term since 1889 The Merchants Trust was founded in 1889 by some of the leading financiers and lawyers of the day. The founders of the trust wanted to give it a strong identity and its name derives partly from the firm which set it up, Bensons, who historically had been merchants themselves. Initially the trust invested internationally, putting up money for the building of railways in North America and Africa, as well as into other types of commercial ventures such as breweries. It also held government bonds. This diversification served it well during some difficult times including the two World Wars and the Wall Street crash. From a very early stage, Merchants also started doing what it has become so good at - paying regular, increasing dividends to its shareholders. During its first 50 years up to 1939, it paid average annual dividends of 7.5%. By the mid 1950s, as equity investment became increasingly popular, Merchants portfolio was largely invested in shares. In 1960, its parent company merged with banking group Kleinworts to become Kleinwort Benson. By 1962 its assets had reached nearly 18m and by the end of the sixties, after some extra fund raising, they had risen to 45m. The UK stock market had a particularly difficult time in the mid 1970s but recovered sharply thereafter. Around that time, Merchants was to benefit from the success of its early holdings in the North Sea oil industry. Between 1975 and 1985, its assets, having dipped back to 31m, grew to over 127m. In 1984 the trust adopted the formal objective of providing a high and growing income without materially impairing the prospects for capital growth. It has achieved this goal with distinction. By 2015, it had achieved 33 consecutive years of dividend growth helped by its ability to put reserves aside in the good years that could be used on rainy days when the companies it invested in were struggling. Since the late 1980s the company s investment universe has been primarily high yield, blue chip UK companies in the FTSE 100 Index. The trust s assets are now worth in excess of 701.7m (as at ). Robert (Robin) Benson, shown here in 1887, founded The Merchants Trust in

11 The trust s history and track record has attracted the attention of the national press. PERSONAL FINANCE Victorian trust reaches for the stars investing in new satellites FINANCIALLY stretched households were handed a small dose of optimism last week when it was revealed that inflation had fallen to 1.9 per cent, just below the Bank of England s 2 per cent target. Economic hurdles that have slowed the ever-rising cost of living have put more goods and services within the reach of ordinary people the theory being that when inflation falls, people are more likely to spend money. That should be good news for The Merchants Trust consumer services make up a fifth of the fund. Since its launch 125 years ago, the make-up of the trust has changed considerably. It had concentrated on the fixedinterest securities of railway companies in the Americas, with the rest in government securities and companies such as Castlemaine Brewery in Australia. Now part of Allianz Global Investors, its attention has shifted to big UK firms paying a dividend. But according to the team behind the trust s success, the philosophy is the same as ever. This is to build capital return as well as generate income, and to offer investors the chance to benefit from the most prominent industries of the day. Some of the trust s most recent gains came from Inmarsat, a UK firm that launched the first of its next generation satellites with the aim of creating a global highspeed mobile broadband service, and cruise company Carnival. However, the trust was let down by poor Christmas trading at Marks & Spencer and Sainsbury s. Fund manager Simon Gergel says the 125-year milestone reminds us that investment is a long-term business. He says: We continue to focus on buying into strong businesses on attractive valuations, with above average dividend yields. The trust has beaten the performance of its benchmark the FTSE 100 Index over one, three, five and ten years. But it also invests in companies outside the UK s top 100, and over ten years has returned 174 per cent compared to the FTSE All- Share s 130 per cent, though some FEBRUARY LAUNCH PAD: Merchants Trust boss Simon Gergel other investment trusts in the sector have exceeded that. Tim Cockerill, of Bristol-based investment adviser Rowan Dartington, says: For the last 31 years it has raised its dividend every year, a feature often overlooked by investors. It s a good trust to tuck away and you should see performance continuing to be respectable over the long term. Laura Shannon Reprinted with permission by The Reprint and Licensing Centre. ( / ). Not to be reproduced without authorisation. 9

12 The Merchants Trust PLC The benefits of Merchants: six reasons why In summary, we believe Merchants offers a number of potential benefits to investors A diversified UK equity portfolio Merchants aims to provide an above average level of income and income growth together with long-term growth of capital through a policy of investing mainly in higher yielding UK FTSE 100 companies. Portfolio Manager Simon Gergel draws on the considerable research resources of Allianz Global Investors as well as his 27 years of investment experience. 33 consecutive years of dividend growth Although income is not guaranteed and could go down as well as up, the trust has paid increasingly higher dividends to its shareholders year-on-year for the last 33 years from 4.2 pence per share in 1982 to 23.8 pence per share in Furthermore, in periods of falling income such as during the financial crisis, the trust can draw on revenue reserves to support its dividend payouts to shareholders. These reserves help smooth dividend payments during short-term periods of difficult economic conditions. Independent, experienced board As an investment trust, Merchants is an independent company listed on the London Stock Exchange. The investment manager is accountable to the trust s autonomous board of directors, safeguarding shareholder interests. 10

13 4 5 6 Long-term conviction As an investment trust, Merchants has a fixed number of shares in circulation at any one time. This frees the portfolio manager from the obligation of selling holdings irrespective of his investment convictions in the advent of redemptions, as would be the case with an open-ended investment structure. Instead, he is able to implement a measured, long-term investment strategy and to make portfolio decisions purely in terms of achieving investor objectives. Please note that investment trusts are quoted companies listed on the London Stock Exchange. Their share prices are determined by factors including demand, or lack of, which means that the shares may trade below (at a discount to) or above (at a premium to) the underlying net asset value. Cost-effective solution Investment trusts own shares in a variety of different companies, so buying shares in Merchants will effectively give you a diversified portfolio of UK stocks. This spreads your risk, as you are not reliant on the success of just one or two companies. And buying shares in an investment trust can be less costly than purchasing the underlying stocks individually - with an annual management fee of 0.35% (ongoing charges 0.59% 1 ), Merchants provides a cost-effective way to access an actively managed portfolio. Liquidity and gearing Merchants is the largest investment trust managed by Allianz Global Investors. With total assets of more than 700m, over 100 million shares in issue and a diversified share register, we believe Merchants is one of the larger trusts in the market place. As an investment trust, Merchants is also able to employ gearing to seek enhanced returns for its shareholders. This can boost performance when markets go up. However, investors should be aware that losses are magnified when markets fall, which could lead to a substantial loss on a client s initial investment. 1 Source: AIC, as at the trust s Financial Year End ( ) 11

14 The Merchants Trust PLC How to invest The Merchants Trust PLC is a UK-based investment trust traded on the London Stock Exchange. You can easily invest in the trust by purchasing shares through a stockbroker or an investment platform. You can also hold shares within a NISA, JISA, SIPP and/ or savings scheme and a number of suppliers offer these facilities. Depending on the type of scheme you choose, you could invest by saving as little as 20 per month. You should note, however, that savings schemes vary in terms of their charges and make sure that you understand what the charges are and that you are happy with them. You will find much more information about The Merchants Trust PLC on our website. As well as the latest performance information including fact sheets and daily share prices, you ll also be able to watch portfolio manager videos, download the awardwinning annual financial report, and read the very latest market announcements and other press cuttings of interest. Pensions freedom From April 2015, pension savers have had the freedom to choose how they take an income in retirement. The AIC s Freedom in Pensions series looks at how investment companies can be used to save for retirement. You must be aware that investing in investment trusts such as Merchants involves risk and the value of your investment and the income from it may fall as well as rise. You should speak to a financial adviser who could guide you in choosing the right type of pension scheme for you. If you have any queries or would like to join our mailing list for monthly updates, financial reports of fact sheets, our Investor Services team can be reached on: investment-trusts@allianzgi.com 12

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16 The Merchants Trust PLC 199 Bishopsgate London EC2M 3TY T: +44 (0) Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors may not get back the full amount invested. Past performance is not a reliable indicator of future returns. You should not make any assumptions on the future on the basis of performance information. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer and/or its affiliated companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable, but it has not been independently verified; its accuracy or completeness is not guaranteed and no liability is assumed for any direct or consequential losses arising from its use, unless caused by gross negligence or wilful misconduct. This is a marketing communication issued by Allianz Global Investors GmbH, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht ( Allianz Global Investors GmbH has established a branch in the United Kingdom, Allianz Global Investors GmbH, UK branch, 199 Bishopsgate, London, EC2M 3TY, which is subject to limited regulation by the Financial Conduct Authority ( Details about the extent of our regulation by the Financial Conduct Authority are available from us on request. The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted. The Merchants Trust PLC is incorporated in England and Wales. (Company registration no ). Registered Office: 199 Bishopsgate, London, EC2M 3TY. The Company is a member of the Association of Investment Companies - Category: UK Equity Income.