Marketing Communication

UK’s medium and smaller-sized businesses have generated higher long-term returns than the UK’s largest companies, over the longer term¹. Here we explore several factors that account for this outperformance:

• The business models of medium and smaller companies are usually more flexible than their larger counterparts, allowing them to act quickly to grasp evolving market opportunities and protect themselves from competitive challenges;
• Medium and smaller companies tend to be innovators, less vested in the status quo and thus more willing to disrupt it; and
• Such businesses are, by definition, at the start of their journey, with scope to grow more rapidly than more established, mature businesses. Many possess the potential to become tomorrow’s market leaders.

These are the companies targeted by The Mercantile’s managers and their team. They aim to identify such businesses before they have realised their full potential, maximising the Trust’s scope to benefit from their superior growth prospects and outperformance. The Mercantile’s team is supported in their search by JPMorgan’s deep equity research resources, and they also call on their own well-established networks to keep ‘an ear to the ground’, which means that one way, or another, they often hear of opportunities at an early stage.

But such potential opportunities need thorough investigation before The Mercantile’s managers are prepared to add a new name to their carefully selected portfolio. In addition to an in-depth assessment of a business’s financial fundamentals – cashflow, earnings, margins, debt levels and valuation etc - the managers also seek more qualitive insights, to allow them to build up a comprehensive understanding of the current state of a business and its prospects for future growth.

Here, access is key. The Mercantile’s managers seek face-to-face meetings with a company’s key personnel and managers. They also conduct site visits to meet employees and view operations, and interview competitors, suppliers and customers, to glean the fullest possible picture. This 360-degree approach is especially useful in understanding a potential investment’s attitude to environmental, social and governance (ESG) issues, which The Mercantile’s managers believe are integral to a business’s long-term sustainability and growth. It is not necessary to look far to identify cases where shoddy environmental standards, discriminatory or exploitative behaviours toward staff and other stakeholders, or poor corporate governance have brought down once lauded, thriving enterprises, so the ability to identify potential problems at an early stage avoids painful losses down the track³.

As one of the largest UK equity investment trust, with over £2 billion in assets under management², a history stretching back 140 years, and a performance track record which attests to their skill at ‘picking winners’, The Mercantile’s managers enjoy exceptional access to companies on their list of potential investments. In a sector of the UK market that is often overlooked, under-appreciated and under-valued by many investors, The Mercantile targets companies that welcome the opportunity to tell their story and discuss their business development plans with such an experienced, high-profile investor. Indeed, some businesses, especially those about to conduct initial public offerings (IPOs), seek The Mercantile’s backing. And companies in which The Mercantile is already invested are equally motivated to maintain ongoing, regular access and open dialogue, to ensure the Trust’s continued support.

In all, the team holds over 350 meetings a year with potential investments and current portfolio holdings. This access is invaluable to the managers, as it forms the basis of their success in identifying the best quality medium and smaller companies with the greatest potential to become tomorrow’s UK market leaders.

¹ The Mercantile Investment Trust plc Annual Report & Financial Statement 2025.

² Data as at 9.6.25 Source Association of Investment Trust Companies. https://www.theaic.co.uk/companydata/mercantile-investment-trust

The risk indicator assumes you keep the product for 5 year(s). The risk of the product may be significantly higher if held for less than the recommended holding period.

³ ESG integration does not imply that the Fund is marketed or authorised as an ESG product in any jurisdiction where such authorisation is required.

Investment objective: Aims to achieve long-term capital growth through investing in a diversified portfolio of UK medium and smaller companies. It pays quarterly dividends and aims to grow its dividend at least in line with inflation. The Company’s gearing policy is to operate within a range of 10% net cash to 20% geared. Gearing may magnify gains or losses experienced by the Company

The value of investments and the income from them can go down as well as up, and you may not get back the amount originally invested.

Key Risks: External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds and income could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions. This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down. This Company may also invest in smaller companies which may increase its risk profile. The share price may trade at a discount to the Net Asset Value of the Company. The single market in which the Company primarily invests, in this case the UK, may be subject to particular political and economic risks and, as a result, the Company may be more volatile than more broadly diversified companies. Companies listed on AIM tend to be smaller and early stage companies and may carry greater risks than an investment in a Company with a full listing on the London Stock Exchange.