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The Mercantile is an actively managed investment company. This means the managers are free to diverge from the Company’s benchmark, the FTSE All-Share (excluding FTSE 100 and investment companies), by choosing the number and size of portfolio holdings, with a view to achieving long-term capital growth, and outperforming the benchmark, rather than slavishly tracking it.

This active approach means the managers have the flexibility to overweight sectors and stocks they particularly like and buy so-called ‘out-of-index’ stocks which are not included in the benchmark. They are also able to entirely avoid industries and companies that form part of the benchmark, but do not meet the managers’ rigorous investment criteria.

In fact, flexibility is integral to the Company’s investment process, beginning with the fundamental stock characteristics the managers target when selecting portfolio holdings. They seek out the UK market’s most nimble companies - innovators and disruptors who can adapt quickly to changing market circumstances. Such companies tend to be mid and small cap businesses with significant potential to grow over the medium to long term. This accounts for the managers’ bias in favour of companies in these areas of the market.¹

The managers also adopt a flexible approach to their task. They are always looking beyond the headlines and consensus opinion, closely examining the latest data and using their industry sources to acquire unique insights into the outlook for the economy, sectors and individual stocks. They are quick to respond to any investment opportunities as they emerge and take active positions that reflect the strength of their convictions in their ideas.

For example, The Mercantile’s managers are optimistic about the prospects for UK tech-related companies. They expect corporate demand for IT infrastructure to remain robust as companies integrate artificial intelligence (AI) into their production and administrative processes. The Trust has significant positions in Softcat, a British technology company providing communications, software licencing, procurement and management services, and Computacenter, an IT services company, which have benefited from this trend. And the managers see scope for them to grow revenues at an even faster rate as customers adopt generative AI solutions. Elsewhere in the tech sector, they have added to their position in Bytes Technology, a technology reseller. ²

Active, flexible management also requires a readiness to exit positions where necessary, and The Mercantile’s managers have demonstrated their willingness to act quickly if a stock’s investment case weakens unexpectedly, or if more attractive opportunities arise in other parts of the market. For example, in 2024 they closed a longstanding and profitable position in luxury watch retailer, Watches of Switzerland, after concerns about the company’s ability to meet its long-range growth target.³

Portfolio gearing (where investment trusts borrow to invest) is another form of flexibility at the managers’ disposal. It provides them with the means to amplify performance in rising markets and reduce market exposure to protect returns in declining markets. The managers have scope to gear the portfolio up to 20% of gross asset value, and to hold up to 10% net cash.

Flexibility, in all its forms, is key to successful active investment management, and combined with the managers’ stock selection skills and their proactive investment approach has enabled The Mercantile to outperform its index over the past three, five- and 10-year periods.⁴ And with flexibility built into the Trust’s investment process, and manifest in the managers’ approach to ideas generation, stock and sector selection and gearing, it should continue to support portfolio returns in future.

¹ Kepler Trust Intelligence, The Mercantile Investment Trust, 28 April 2024

² JPMorgan Asset Management, portfolio holdings, 30 June 25

³ The Mercantile Investment Trust plc Annual Report & Financial Statements, 2024 (Portfolio Managers’ report)

⁴ JPMorgan Asset Management, 30 June 2025.

Cumulative returns as of 30.6.25 %:

Summary Risk Indicator

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.

Investment objective: The Company 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.

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.