Merchants Trust: May 2026 trust update

• Simon Gergel is an experienced income investor and has managed Merchants Trust since 2006

• The trust increased its dividend by 1.4% to 29.5p per share in the year to the end of January 2026, the 44th consecutive annual increase

• The trust aims to provide a high level of income, and to grow the income and capital over the long term

How it fits in a portfolio

Merchants Trust invests in UK listed companies with an aim to provide a high level of income, and to grow the income and capital over the long term. It could therefore fit as part of an income-focused investment portfolio or add larger UK companies exposure to a broader, diversified portfolio.

Manager

Merchants Trust has been managed by Simon Gergel since 2006. He works closely with Richard Knight, Andrew Koch and with the wider investment team at Allianz Global Investors (AGI). They carry out individual company analysis in addition to looking after the management of the trust.

Gergel is Chief Investment Officer for UK equities and head of the UK Equity Income & Value Team. He joined AGI in 2006 from HSBC and previously began his career managing UK equities at Phillips & Drew. He also co-manages the open-ended Allianz UK Equity Income fund and is deputy manager on the Allianz UK Listed Opportunities fund.

Knight joined AGI in 2014 and is lead manager of the Allianz UK Listed Opportunities fund and co-manager of the Allianz UK Equity Income fund with Gergel. Koch joined AGI in 2023 from Legal & General where he spent nine years as Head of the Value & Income team, working on European, UK and Asian strategies. The team can also draw upon the wider group’s research and analysis in the credit, Environmental, Social and Governance (ESG) and macroeconomic areas.

Process

Merchants Trust invests in UK companies with small allocations to some overseas companies and higher risk smaller companies. As of the end of April 2026, these stood at 3.9% and 5.3% respectively. Gergel looks for quality companies, which can be bought at a reasonable share price and pay a high dividend. If they don’t pay a high dividend now, they are bought on the basis they will yield in line with the market within 18 months unless there is an exceptional circumstance.

Gergel’s investment process focuses on three key areas. Firstly, he aims to understand the fundamentals of a company, including its competitive position and financial strength. Valuation is a key element, and the manager aims to buy shares at a price he believes is much lower than what the company will be worth in future. He looks at valuations compared with both the company’s own history and its peers. Finally, he considers industrial and consumer themes together with the economic outlook. Themes describe the environment in which a business operates and help Gergel to understand the likelihood of various scenarios happening in the future.

Investments are sold if the share price no longer offers enough value, if there’s a change in the investment case or if there are better opportunities elsewhere with greater return potential.

In the trust’s last financial year to the end of January 2026, the manager made some changes to the portfolio. 12 new investments entered the portfolio, with 12 investments being sold. This is more than normal however, Gergel believes there have been plenty of opportunities as the markets been volatile.

New additions include healthcare and pharmaceuticals company Hikma, technology company MONY Group best known for MoneySuperMarket. They also received shares in Primary Health Property after they acquired Assura and consumer company The Magnum Ice Cream Company after they demerged from Unilever.

On the other hand, airport owner Aena was sold. Aena are the owners of many Spanish airports as well as some other international airports. The share price has increased as tourism began to recover in Spain, but increased business spending will reduce cashflow in the medium term, so Gergel decided to sell. Also sold was banking company Close Brothers, Gergel believes there isn’t as much upside anymore and has moved onto better opportunities.

Investors should be aware the trust can borrow money to invest with the intention of increasing returns (known as gearing), but this could magnify losses in a falling market and increases risk. As of the end of April 2026, gearing stood at 13%, this is towards the lower end of the 10-25% range investors can typically expect gearing be. The manager can also use derivatives, which adds risk. Investors in investment trusts should also be aware the trust can trade at a discount or premium to net asset value (NAV).

Culture

Allianz Global Investors (AGI) is the asset-management arm of Allianz SE, the German-based financial services and insurance company. As with any large asset manager, the investment resources are substantial and spread globally across asset classes. AGI manage a number of investment trusts and Kleinwort Benson, which was acquired by AGI, were appointed to manage Merchants Trust at launch in 1889.

ESG Integration

Simon Gergel aims to identify and analyse environmental, social and governance (ESG) factors that could impact a company’s prospects. This helps him understand the extent to which a business is exposed to reputational issues and if they are reflected in the share price. Companies with a low score on any ESG factor, are sold or if they are to be included in the trust, need to be justified. The manager actively engages with companies included in the trust with these factors to promote best practice. Over the course of the Trust’s financial year, Allianz Global Investors has conducted 34 meetings with portfolio companies to further their understanding of ESG issues and engage with company management.

ESG factors have become increasingly prominent within the investment community over recent years. Allianz Global Investors has incorporated ESG into company analysis since 2000, which makes them somewhat of a pioneer in this area. As long-term stewards of investor capital it makes sense for them to closely consider these factors in their investment analysis.

Cost

The annual ongoing charge to January 2026 was 0.54% a marginal increase from 0.52% the previous year. Investors should refer to the latest annual reports and accounts, and Key Information Document for details of the risks and charging structure.

We recently made some changes to the amount clients pay to invest with us. Find out more about these changes

The annual charge to hold investment trusts in the HL ISA, SIPP or Fund & Share Account is 0.35% (capped at £150 p.a. in each account) and 0.25% in the HL Lifetime ISA (capped at £45 p.a.). There are no charges from HL to hold investment trusts within the HL Junior ISA. As Investment trusts trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges

Performance

The trust has performed well over Simon Gergel’s tenure as manager, delivering a return of 284.63%* to investors, ahead of the FTSE All Share’s 280.74% return and the average UK Equity Income Investment Trust which returned 282.39%. The trust’s net asset value (NAV) also rose 257.71%.

In the trust’s last financial year, the dividend paid to investors increased by 1.4% to 29.5p per share, which was covered by the trusts’ income. The board have also increased the annual dividend every year for the last 44 years, which is one of the longest records of dividend growth in the UK Equity Income sector, an impressive feat. Although this shouldn’t be taken as an indication for future payments and past performance is not a guide to the future.

Over the trust's last financial year to the end of January 2026, the trust’s NAV rose 18.9% with the share price rising by 18.2%. This compares with a return of 21.1% for the FTSE All Share index over the same period.

One of the main detractors of the trust’s performance was media business WPP. The company has reported poor results over the last 12 months and Gergel believes there could be further restructuring under a new CEO so has decided to sell his investment. Discount retailer B&M has also detracted, Gergel still believes in the long term potential but more recently they company’s profit has dipped following accounting issues when implementing a new IT system. The trust also struggled due to not holding bank HSBC and aerospace and defence company Rolls Royce, Gergel now believes these companies are too expensive and don’t show much upside potential.

On the other hand, Copper producer Atalya Mining was one of the largest contributors to performance. They have benefited from the higher copper prices as well as improving their own operations. Banking group Lloyds and defence company Serco group also performed well.

At the time of writing the trust trades at a discount of 6.2% marginally higher than their average over the last 12 months which was a discount of 5.9%. They also have a dividend yield of 4.80%, although remember yields are variable and aren’t a reliable indicator of future income. All investments and any income they produce can fall as well as rise in value, so investors could get back less than they invest.