Merchants Trust asset value climbs 16.2%

The preliminary results for the year ended January 31 also show a 2.3% rise in total dividends, amounting to 18p per share, which is the 23rd successive annual increase in payouts. Net earnings per share increased by 1.4%.

Nigel Lanning, manager of the investment trust says: “Income growth has been extremely popular with British investors and the trust’s performance has benefited from this. We currently have well over 20,000 retail investors in the company.”

Lanning, who has managed the trust for 20 years, says the portfolio is generally managed on a conservative basis. He says: “Income stocks have done well. Performance was driven by investing in tobacco, utilities, and commercial property-based stocks. The banking sector has also produced strong returns although you have to tread carefully in picking the right ones. We are invested in Barclays, Lloyds TSB and HBOS.”

The investment approach is based on a bottom-up style with investments made on a stock-by-stock basis, explains Lanning. The trust is currently about 80% invested in FTSE 100 stocks, with the remainder of its assets mainly in medium-sized companies.

Among the mid-caps, Lanning likes well-financed firms with steady earnings, such as Premier Foods, Tomkins and IMI Group: “Defensive, value-based stocks have fared well,” he notes.

The trust’s assets stand at £545m and it is approximately 25% geared, having £112m in long-term debt with a typical borrowing term of 15 to 16 years.

The portfolio is underweight in companies such as Vodafone and AstraZeneca.

The trust, which is in the UK Growth & Income sector, was originally launched in 1889 and is one of the longest-running British investment trusts. The annual general meeting is to be held on May 10 The board is to recommend to shareholders a company buyback of ordinary shares.

Lanning notes that since the trust announced its results on March 8, its share price rose 2.3% to the end of last week. “The intermediary market has obviously taken notice of the strong performance.”