7 min read
Guy Anderson, Portfolio Manager of The Mercantile Investment Trust, discusses what’s driving renewed interest in UK equities, how takeover activity is creating opportunities to reinvest, and where he sees potential for future growth.
Q: What does The Mercantile Investment Trust offer investors?
The Mercantile targets tomorrow’s UK market leaders – innovative companies outside the FTSE 100 with compelling opportunities for growth. These companies, on average, have outperformed over the long-term due to their inherent ability to grow more rapidly than larger, mature businesses. Over the past 30 years, The Mercantile’s performance has outpaced the FTSE100, as well as the FTSE250 (see Chart 1 below). With a market capitalisation of £1.7bn1, The Mercantile is the largest investment trust amongst its UK medium and small cap peers, making it an appealing and competitive means of gaining exposure to the many opportunities available in this part of the UK market.
Q: What’s attracting renewed interest in UK equities?
Attractive valuations. Despite political uncertainties at home and abroad, many British companies are performing strongly, yet they have been trading at significant discounts to their historical average valuations, and to their counterparts in other markets. And global investors are beginning to appreciate this discrepancy and rotate into this market. The same forces have seen mergers and acquisitions (M&A) activity in the UK equity market increase dramatically, with companies changing hands at an average 40% premium to their current stock price2.
Q: How is The Mercantile responding to the rise in M&A activity?
The Mercantile is ideally placed to capitalise on this interest, as medium and smaller companies are the focus of much of the takeover activity due to their affordability. Several of the Trust’s portfolio holdings have been subject to takeover offers, and we have taken the opportunity to capture the takeover premiums on offer. This directly benefits our performance and hence returns to shareholders. It also frees up capital to invest in the many heavily discounted growth opportunities available in other parts of the market.
Q: So, how has The Mercantile deployed this freed up capital?
We have used some of these funds to increase exposure to the boom in artificial intelligence (AI) investment. The UK market may not boast any of the highest-profile tech names, but it still offers AI exposure via businesses like Computacenter. It is a technology and services provider benefiting from growing demand from major technology companies and other businesses investing in AI infrastructure. The company is winning market share, and pre-tax profits almost doubled in the first half of 2026 compared with the same period in 20253. We have increased our holding, and Computacenter has been a significant contributor to recent performance (see Table 1 below).
Earlier this year, we also opened a new position in Renishaw, a leading supplier of high-quality precision engineering services whose services are in great demand from semiconductor manufacturers. The stock has performed well since acquisition4.
And across the broader market, we are always on the lookout for companies willing to invest in future growth. For example, the portfolio has a significant holding in Cranswick, a pork processing business, which is increasing its production capacity and expanding into poultry5.
Q: What about new listings?
Initial public offering (IPO) activity in the UK market has been subdued for some time, but renewed interest in the market is encouraging many companies to consider listing. Regulatory reforms to speed up and smooth the listing process are also helping. We aim to engage with businesses early in their listing process, which gives us forward visibility on the most attractive opportunities.
And we hope that the recent interest in IPOs, supported by policy reforms, will mark the beginning of a trend which will inject even greater vibrancy into the whole of the UK market.
Q: While The Mercantile has a primary objective of delivering capital growth, it also aims to grow dividends at least in line with inflation. Has it achieved this goal?
Yes, it has. The Trust has maintained or increased its divided every year since 1992, growing at an average annual rate of 8.3% over this period – well ahead of inflation (see Chart 2 below). And the dividend policy is supported by revenue reserves which can be used to facilitate continued dividend growth in periods when annual portfolio income may be constrained.
Feedback from shareholders makes it clear that the Trust’s dividend policy is very appealing to individual investors seeking a regular income, with the aim of growing dividends at least in line with inflation over the long term.
Q: The UK market certainly seems to be on the up. How does the future look to the team at The Mercantile?
We are positive about the outlook for the market, and the portfolio. This confidence is reflected in the current level of portfolio gearing, which is around 16%6, at the top end of its long-term range.
Our optimism is supported by several factors. Global growth remains encouraging and despite uncertainties, portfolio companies continue to perform very well. Yet the market still offers exceptional value, even after recent gains, and there are some extraordinary growth opportunities available.
The Mercantile’s long-term performance suggests our investment process is effective in identifying and capturing these opportunities, across different market conditions, and we intend to remain proactive in taking advantage of market developments and appealing valuations to enhance future performance.
The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. The portfolio is actively managed. Holdings, sector weights, allocations and leverage, as applicable, are subject to change at the discretion of the investment manager without notice.
