Merchants

[Avantegarde]

I sold my holding in Merchants 2-3 years ago. It had been, and continued to be, a dog. But I noticed, when recently perusing my list of past investments, that it has had a very good 12 months. Its total return is up about 31% compared to a 20% rise in the FTSE-All Share index. Any particular reason, or has its specific mix of UK big companies finally come good?

[everhopeful]

Merchants has been slashing its debt repayment charges as discussed elsewhere on this board but it has also increased its NAV ahead of its benchmark in the last 12 months.

[scotia]

Merchants has been slashing its debt repayment charges as discussed elsewhere on this board but it has also increased its NAV ahead of its benchmark in the last 12 months.

Merchants (MRCH) is another of the UK high dividend ITs which has underperformed the general UK market over the past five years - although it is significantly better than some of its rivals, e.g. Edinburgh (EDIN) and Perpetual (PLI), and it has recently caught up with the FTSE all share over five years. So it certainly looks like a reasonable choice in the UK high yield sector - and unsurprisingly it is sitting with only a small discount.
Why has it performed so well over the past year? The January 2019 annual report indicates that it was operating with a gearing of around 20%, and the loans to cover this were all on longish terms. In the July half yearly report, they indicated that they had re-financed the loans, and had reduced the average interest to 3.5%. So any market rise above 3.5% should bring additional profit from the gearing, whereas last year (2018-2019) I suspect the opposite was true.

[JuanDB]

Merchants has been one of my best timed (I.e. luckier) recent investments. Fortunate to have years ISA cash available when the price recently dropped to 4.55 and 5.95% yield. I have a 20% capital increase in a little over 2 months.

Generally don’t try and time the market but sometimes it just falls right.

I’m sure mr market will be along shortly to take the gain back. I’ll collect the income in the meantime.

[Arborbridge]

MRCH has been in my basket since 2010 and has always just about done enough to justify its place, mainly on the yield.

Results so far: XIRR 8.95%, increase in dividends for five years, 2.4%pa. So not great, but it does give my "bang for the buck invested" a boost - and it's income which I'm living off.

Contrast with another IT of similar ticker: MRC

XIRR 13.07% from 2011; dividend increasing at 9.5% in 5 years: yield usually in the range 2.5-3%

Both are useful - it's horses for courses.


Arb.

[BrummieDave]

Contrast with another IT of similar ticker: MRC

XIRR 13.07% from 2011; dividend increasing at 9.5% in 5 years: yield usually in the range 2.5-3%

Both are useful - it's horses for courses.


Arb.

And MRC, my fifth largest holding, is up 51% in the past 12 months after a drab period previously, and has indeed delivered 9.5% compounded annual divi increase over 5 years.

Horses for courses as you say.

[jonesa1]

The worry with MRC (and HSL, which I hold, plus other mid / small caps) is that a lot of the recent price rise has been from the discount narrowing to 10 or more percentage points better than its typical level over the last decade. On that basis, I expect most of the recent rise to evaporate once the relief at the electorate rejecting Corbyn gives way to concern about the impact of leaving the EU on UK-centric businesses.

[scotia]

The worry with MRC (and HSL, which I hold, plus other mid / small caps) is that a lot of the recent price rise has been from the discount narrowing to 10 or more percentage points better than its typical level over the last decade. On that basis, I expect most of the recent rise to evaporate once the relief at the electorate rejecting Corbyn gives way to concern about the impact of leaving the EU on UK-centric businesses.

Agreed - and for that reason I have sold MRC. Much safer to buy an OEIC/Unit Trust/ETF at this stage, rather than risk a 10% discount drop in an IT.

[Dod101]

The worry with MRC (and HSL, which I hold, plus other mid / small caps) is that a lot of the recent price rise has been from the discount narrowing to 10 or more percentage points better than its typical level over the last decade. On that basis, I expect most of the recent rise to evaporate once the relief at the electorate rejecting Corbyn gives way to concern about the impact of leaving the EU on UK-centric businesses.

Agreed - and for that reason I have sold MRC. Much safer to buy an OEIC/Unit Trust/ETF at this stage, rather than risk a 10% discount drop in an IT.

There is no 'risk' in an increased discount in an IT unless you plan to sell it. ITs are really best seen as LTBH investments.

Dod

[Arborbridge]

The worry with MRC (and HSL, which I hold, plus other mid / small caps) is that a lot of the recent price rise has been from the discount narrowing to 10 or more percentage points better than its typical level over the last decade. On that basis, I expect most of the recent rise to evaporate once the relief at the electorate rejecting Corbyn gives way to concern about the impact of leaving the EU on UK-centric businesses.

Agreed - and for that reason I have sold MRC. Much safer to buy an OEIC/Unit Trust/ETF at this stage, rather than risk a 10% discount drop in an IT.

It doesn't bother me. Yes, one can play the discount, but I'm done with playing such games. If the discount increased, I might buy more, though.

MRC has the advantage of a well worked out process which does not depend too much on "star" managers. It also gives me some different companies to hold compared with the old income IT warhorses.
I hadn't really noticed the increase in price, but I see the NAV has come on 35% which is pretty good.