Mercantile (MRC), JPMorgan’s £1.7bn UK “mid-cap” investment trust, underperformed in the year to 31 January as the portfolio missed out on most of the takeover bids made for undervalued British companies below the FTSE 100.

Fund managers Guy Anderson and Anthony Lynch said the UK market “experienced a flurry of incoming takeover activity” with more than 30 successful bids of more than £100m in 2025.

Unfortunately, while many of these were priced at significant premiums the portfolio benefited from holding only two: Alpha Group International, the currency broker bought for £1.8bn by US payments group Corpay; and Just Group, the retirement income and annuity provider acquired for £2.4bn by Canada’s Brookfield Wealth Solutions.

The most material of the misses was Spectris, which they said “was the subject of a bidding war between two possible private equity buyers, and ultimately commanded a near 100% takeover premium.”

Annual results showed that big gains in Serco and Balfour Beatty helped the trust deliver a 12.3% underlying investment return, although losses on alternative asset manager ICG, private equity giant 3i Group and ticket website Trainline ensured this came in below the 15.8% of its benchmark.

Chair Rachel Beagles said that over five years the managers continued to beat the FTSE All-Share with FTSE 100 stocks and other investment trusts excluded. A total return of 42.5% on Mercantile’s net assets had exceeded the 39% from the benchmark, although the discount on the share price meant shareholders only received 36.9% including dividends.

Our view

Matthew Read, senior analyst at QuotedData, said: “These are a reasonable set of results from Mercantile, even if the headline underperformance over one year is a little disappointing. The trust’s long-term performance record is intact and this year’s lag appears largely down to stock selection – industrials and certain financials did well although investment banking and brokerage names struggled, as did some consumer-facing businesses. Mercantile also gained from takeovers of Alpha Group International and Just Group, but missed out on more bids elsewhere which hurt its relative performance overall. However, with valuations in UK mid- and small-caps still looking compelling and M&A activity elevated, the backdrop could play to Mercantile’s strengths, provided it can get the stock picking right.”

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