At a time when UK stocks are out of favour with investors both at home and abroad, it may surprise many to learn that the UK’s medium and smaller-sized businesses have generated higher long-term returns than the UK’s largest companies¹. Several factors 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 (MRC) 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. MRC’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 MRC’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. MRC’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) needs, which MRC’s managers believe are integral to a business’s long-term sustainability and growth.

As the largest UK equity investment trust, with over £2.0 billion in assets under management², a history stretching back almost 140 years³, and a performance track record which attests to their skill at ‘picking winners’, MRC’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, MRC’s target companies 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 MRC’s backing. And companies in which MRC 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 MRC’s 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.

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.

¹ Annual Report & Financial Statement 2023. Past performance is not a reliable indicator of current and future results.

² £2152.24Mn, data as of 24/01/2024.

³ Share class inception as of 08/12/1884

Investment objective:
Aims to achieve 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.

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.

This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. Investment is subject to documentation. The Annual Reports and Financial Statements, AIFMD art. 23 Investor Disclosure Document and PRIIPs Key Information Document can be obtained in English from JPMorgan Funds Limited or at www.jpmam.co.uk/investmenttrust. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.
 

09ii243101171629