OREANDA-NEWS. The Merchants Trust (MRCH) offers one of the highest yields currently available on a mainstream equity investment trust (5.9% at 11 December), as well as the potential for capital growth. Manager Simon Gergel has positioned the trust with a tilt towards mega caps in areas such as banks, where dividend growth could come back strongly as legacy issues subside. The focused portfolio of 44 stocks also has exposure to UK economic growth via the industrial and consumer services sectors, and selected holdings in resources offer recovery potential. MRCH pays dividends quarterly and has a 33-year record of annual dividend growth. The discount has widened over the year as large caps have fallen from favour, with scope for it to narrow to a level more in line with long-term averages.

At 15 December, MRCH's shares traded at a 3.2% discount to cum-income NAV (with debt at market value). This is wider than the averages over one, three and five years (2.8%, 1.2% and 0.3% respectively), possibly as a result of recent weaker performance from the largest UK stocks, as well as the trust's relatively high level of fixed gearing. In the run-up to the first tranche of debt maturing in January 2018, the board will consider options regarding refinancing, which could potentially lead both to greater flexibility and to an uplift in the revenue account.