Merchants Trust
Why is this fund on our radar?
Merchants Trust (MRCH) offers an attractive way into the UK market, aiming to deliver a rising income year after year as well as provide long-term capital growth. To do this, its managers, Simon Gergel, Richard Knight, and Andrew Koch, search the whole UK stock market for opportunities, investing in some of the big household names, alongside small- and medium-sized businesses.
What makes the investment approach interesting, in our view, is the type of company they look for. Rather than simply invest in the companies the market already rates highly, the managers seek out good quality businesses that are cheap after falling out of favour with investors, but have the potential to improve. This approach has delivered strong returns over the long term, as MRCH has outperformed passive funds investing in UK stocks over the past decade (to the end of September 2026).
Furthermore, MRCH has a long history of raising its dividend every year for more than 40 years. Given the managers’ emphasis on companies paying high dividends and the ability of investment trusts to put money aside to support dividend increases in the future, we believe MRCH is in a strong position to extend this track record.
Skip to Our VerdictPerformance
MRCH has built a strong long-term track record against the UK market as a whole, shown in the chart below through a passive fund that tracks it. Over the past 10 years (to the end of September 2026), MRCH has delivered higher returns than the broader UK stock market. It has also done so consistently: looking at every five-year period over the past decade, MRCH came out ahead of the passive fund tracking the UK market more than 80% of the time.
However, performance has not been completely smooth sailing. Over the past five years (to the end of September 2026), MRCH’s returns have been more in line with the broader UK stock market. Within this period, the trust offered some resilience in 2022, a year marked by surging interest rates, geopolitical tensions following the start of Russia’s invasion of Ukraine, and an energy crisis, thanks to its investments in electricity-related businesses and tobacco companies, whose products tend to be in demand even when times are tough.
By contrast, 2025 was a more challenging year, although returns were still positive. Some of the market’s strongest performers, such as defence businesses, delivered impressive results and attracted significant investor enthusiasm. MRCH held few of these, as they didn’t fit the managers’ focus on businesses that are out of favour but have the potential to improve, and that weighed on returns. That said, going against the crowd, looking for those quality, yet out of favour names that are trading more cheaply, has been paying off since the start of 2026 as MRCH has delivered strong returns.
As well as compelling long-term capital returns, MRCH also aims to provide investors with a growing dividend year after year, and has a long history of delivering on this goal. In fact, the trust has increased its dividend for 44 consecutive years, through periods of both strong and weaker economic conditions. One reason for this success is the managers’ focus on investing in resilient businesses that pay high dividends. In addition to this, MRCH has an advantage that comes with being an investment trust: it can put some of the income it earns aside in good years and draw on it to keep raising its dividend when times are tougher.
dividend increase
Source: Allianz Global Investors
Past performance is not a reliable indicator of future results
Portfolio
MRCH aims to deliver investors a steadily rising dividend, year after year, alongside long-term growth. For that purpose, the managers invest in dividend-paying companies that investors have turned away from or simply overlooked, potentially leaving their shares cheaper than the business deserves. Buying these good companies at attractive prices means that as the businesses improve or return to favour, MRCH benefits as share prices rise.
The bulk of the portfolio usually consists of large UK companies. However, the managers can also invest in medium-sized and smaller businesses and will do so when they believe they offer better opportunities. Large companies currently account for almost half of the portfolio, as the chart below shows, with over 40% invested in smaller companies. We think this sets MRCH apart from many other dividend-focused funds investing in UK companies, as they can typically favour only the larger UK businesses that call the FTSE 100 home.
MARKET CApitalisation breakdown
Source: Allianz Global Investors
Another attractive feature of MRCH is that it can invest in foreign companies, which can add some extra diversification to the portfolio. However, the managers only do so if they believe these businesses are more attractive than equivalent UK firms, or if they represent an opportunity that is not available in the domestic stock market. One current example is Michelin, a French tyre manufacturer, which the managers see as market leader in its respective sector, benefiting from a well-known brand and a history of developing innovative products.
Our Verdict
In our view, MRCH could be a compelling addition to a portfolio looking for income. Not only does the trust currently offer a dividend yield of 4.3%, a premium to the UK market, but MRCH is also made up of a wide range of quality businesses supporting a strong track record of annual dividend growth spanning more than four decades. And, as it is an investment trust, the board has reserves which could allow it to continue this record even if the income it earns falls one year.
We also believe the managers’ approach is a real strength. By focusing on good businesses that are out of favour with investors but where they anticipate improvements, they aim to get in before the market recognises that progress, which offers the potential for both dividend growth and share price gains. In addition, we like MRCH’s exposure to small- and medium-sized companies, which have more room to grow than larger businesses and can add a different source of returns to the portfolio.
Finally, we see an edge in MRCH’s seasoned management team, notably lead manager Simon, who has managed the trust since 2006, bringing deep knowledge of UK stocks and experience of different economic environments to the table. Moreover, the team benefits from the extensive resources available from the wider firm, Allianz Global Investors, which we think can enhance their research capabilities and leave no stone unturned in their search for UK opportunities.
Key Risks
- Focus on dividend-paying companies means MRCH could lag the broader market when rapidly growing businesses are in favour
- The trust holds more small- and medium-sized companies which can be more sensitive to the strength of the economy than larger UK companies
- MRCH can use gearing, or debt, to invest which can amplify both returns and losses
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