Investing into a more challenging environment

Simon Gergel, Portfolio Manager - The Merchants Trust PLC

Risk and opportunity are two sides of the same coin. There are risks for investors in the current geopolitical environment but these risks have also created investment opportunities. Risks include the potential impact of Brexit, the rise of anti-establishment movements across much of Europe, trade tensions between the USA and China, and a gradual tightening of monetary policy, especially in the USA.

Here in the UK, the economic outlook is uncertain. After a decade of expansion since the financial crisis, and considering the risks listed above, the rate of economic growth could slow, perhaps sharply, and there have been some recent signs of weaker activity. However, it is also noteworthy that the recovery since the last recession has been relatively muted, wages are only now starting to accelerate above the cost of living, and there is pent up demand, as Brexit uncertainty has put some investment and spending plans on hold. A lifting of the Brexit fog, and some resolution to the US/China trade spat, could lead to a re-acceleration of economic growth.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

Stock markets are also sending mixed signals. UK Equity returns over the last decade have been extremely strong, yet the FTSE 100 Index of leading shares is broadly where it was 20 years ago. UK shares are especially cheap compared to other major world stock markets, largely due to investor nervousness over Brexit. In our view, this represents a particular opportunity, especially as some two thirds of UK listed companies' sales and profits comes from abroad. Within the stock market, valuations are polarised, with domestically exposed stocks depressed, whilst many higher growth or defensive, international earners seem fully or over-valued.

This is a good environment for active investors like ourselves. At The Merchants Trust, we invest in around 45 higher yielding, large UK companies in a risk-diversified portfolio. Our investment philosophy is to seek to buy sound companies when they are under-priced in the stock market, in order to deliver a high income stream and above-average total returns to our investors.

The Trust was established in 1889 so celebrates its 130th anniversary this year. Short-term external setbacks have always challenged the company over its lifespan but it has succeeded in delivering capital and income returns through good times and bad. That's why, looking ahead, we think it is vital to continue doing what we've always done, confident that good stock opportunities can always be found.

Simon Gergel, Portfolio Manager - The Merchants Trust PLC

To find out more about Simon's investment philosophy visit www.merchantstrust.co.uk

Important information: This is no recommendation or solicitation to buy or sell any particular security. Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors may not get back the full amount invested.

This is a marketing communication issued by Allianz Global Investors GmbH, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, D 60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by Bundesanstalt fr Finanzdienstleistungsaufsicht (www.bafin.de). Allianz Global Investors GmbH has established a branch in the United Kingdom, Allianz Global Investors GmbH, UK branch, which is subject to limited regulation by the Financial Conduct Authority (www.fca.org.uk). The Merchants Trust PLC is incorporated in England and Wales (Company registration no. 28276). Registered Office: 199 Bishopsgate, London, EC3M 3TY.