FE fundinfo Alpha Manager Anthony Lynch will step down as co-manager of the Mercantile Investment Trust on 31 October after 14 years in charge, it was announced today in the investment company's half-year results.
Co-manager Guy Anderson (also an Alpha Manager) will continue to run the fund, which invests in UK medium-sized and smaller companies, with Manasij (Manny) Hajra joining him as co-manager from 1 November.
Hajra has been part of the Mercantile team for seven years. In the report, the board thanked Lynch for "his significant contribution to the management of the company’s portfolio during his tenure", noting that the change was due to Lynch taking on new responsibilities within JPMorgan Asset Management, which runs the trust.
The handover followed a half-year in which the trust’s net asset value (NAV) returned 5.6% in the six months to 31 July while its benchmark, the FTSE All-Share index excluding the FTSE 100 and investment trusts, returned 3.9%.
The trust logged first-quartile performance in the IT UK All Companies sector over the past 12 months and sat in the second quartile over three, five and 10 years.
The managers credited stock selection, the trust’s borrowing and share buybacks for the half-year results.
Software and computer services holdings did most of the work, led by Softcat, Computacenter and Trustpilot. Infrastructure company Hill & Smith, banking group Lion Finance and UK contractor Balfour Beatty also contributed. Housebuilder Bellway was the largest detractor, followed by Serco, Telecom Plus and 3i.
The managers said the overall portfolio did not change materially, but they made around 10 new investments and disposals.
The largest addition was EasyJet, bought after the airline dropped out of the FTSE 100 and before it received multiple bids at substantial premiums. The managers also added to Softcat and Rosebank during the market turmoil shortly after the US attacks on Iran. They said Softcat’s share price had disconnected from its financial performance, and they took part in Rosebank’s capital raise. A larger stake in Computacenter reflected demand linked to the AI build-out.
New positions also went into Renishaw, which supplies precision measurement and production systems, and Watches of Switzerland. The largest sales were Dunelm, Carnival and Telecom Plus.
For Anderson and Lynch the outlook is "always uncertain, and this year is no different".
"However, there are also reasons for optimism… global economic growth remains encouraging and portfolio companies are generally performing well…and yet the valuation of the UK market remains at a substantial discount to both its own history and relative to other developed markets," they said.
“As with last year, this fact has not gone unnoticed, and we have seen a continued run of corporate acquisitions, alongside an elevated volume of share buybacks being executed by management teams.”
Gearing was 17.2% at the end of July, up from 14.4% on 31 January. It is now around 15%, as Anderson recently told Trustnet.
As part of its buyback programme, the trust bought back shares during the half-year at an average discount of 9.7% to NAV, which it said added 0.7% to NAV for remaining shareholders, yet the discount widened slightly over the period, from 9.4% to 9.7%.