Merchants Trust: the income stocks we’ve been buying and selling

TL;DR

The UK stock market offers opportunities for investors due to its cheap valuations and dispersion of valuation. The manager discusses buying undervalued companies like Pets at Home and selling fully priced ones like BAE Systems.

Transcript

foreign hello and welcome to the latest Insider interview Our Guest today is Simon gurgle manager of the merchants trust Simon thank you very much for coming into the studio hello it's been a volatile start to the year we've seen interest rates hit five percent in the UK and lots of worries about the economic Outlook so how have you been managing t... Read More

Key Insights

• 🎁 Volatility in the markets presents opportunities for stock pickers like the manager.
• 👋 Buying undervalued stocks in the cyclical and mid-cap areas can yield good returns.
• 🌐 The UK stock market is cheap compared to global markets due to political uncertainty and concerns about the economy.
• ✋ Banks and energy companies offer high dividend yields and sustainable dividends.
• 😨 There are under-the-radar dividend payers in the building products and car distribution sectors that present income investing opportunities.
• 🛄 The trust has a modest amount of gearing, which aims to enhance returns but can also amplify volatility.
• ☠️ Rising interest rates may have a minimal impact on the trust's gearing due to the majority of fixed-rate debt.
• 🔬 The manager personally invests in the trust.

Questions & Answers

Q: How has the manager been managing the portfolio amid a volatile start to the year?

The volatility in the market has provided opportunities to buy undervalued stocks in the UK stock market, particularly in the cyclical and mid-cap areas.

Q: What are some examples of companies the manager has bought and sold this year?

The manager bought Pets at Home, a pet retailer with a resilient business model, and sold BAE Systems, a defense company that reached its peak valuation.

Q: Why is the UK stock market considered cheap compared to other global markets?

The UK market is trading at a substantial discount to its price-earnings ratio, primarily due to political uncertainty after Brexit and concerns about the UK economy's performance.

Q: Which high-yielding shares present good income investing opportunities?

Energy companies and banks, which have strong cash flows and are generating significant dividends, offer good income investing opportunities in the UK market.

Summary & Key Takeaways

• The UK stock market is cheap compared to its history and other markets, providing opportunities for investors.

• Undervalued companies in the cyclical and mid-cap areas offer good investment prospects.

• Selling pressure on domestic companies has created buying opportunities.