The Merchants Trust was incorporated in London on 16th February 1889, one of numerous such companies to launch during the 'trust boom' of the late 1880s.

The emergence of the Trust came during an era of great change, challenge and achievement, in which the Suffragette movement was born, the Eiffel Tower opened, the Coca-Cola company expanded and Van Gogh’s masterpiece Starry Night completed.

Vincent van Gogh, The Starry Night (1889), Oil on canvas, 29x36 ¼ (73,7x92,1 cm). Acquired through the Lillie P. Bliss Bequest. Credits:Digital image, The Museum of Modern Art, New York/Scala, Florence

Vincent van Gogh, The Starry Night (1889), Oil on canvas, 29x36 ¼ (73,7x92,1 cm). Acquired through the Lillie P. Bliss Bequest. Credits:Digital image, The Museum of Modern Art, New York/Scala, Florence

Unlike many, though, The Merchants Trust has survived boom and bust, recession and wars, and this year proudly celebrates its 130th anniversary.

How has it survived when so many haven’t? In short, through a remarkable degree of careful diversification and a set-in-stone policy of putting reserves away for a rainy day, protecting the Trust against the rainiest of days over the proceeding 130 years.

Mary Ann Sieghart, Non-Executive Director on the origin and objectives of the Trust

Mary Ann Sieghart, Non-Executive Director on the origin and objectives of the Trust

While its investment strategy is very different today, The Merchants Trust’s purpose remains the same: to buy into a diverse group of investments in order to provide the ordinary investor with an opportunity to access growth industries across the globe. As Robert ‘Robin’ Benson, the Trust’s founder and first chairman, put it at the 1892 AGM:

Past performance is no indication of future returns.

The Merchants Trust was initially founded as a means of gaining exposure to North American railway expansion, and investments were spread by country, continent and industry, as well as by the inclusion of government and local government fixed income securities. By the end of the first 12 months of operations the company’s portfolio comprised 152 investments. The Castlemaine Brewery in New South Wales was one of The Merchants Trust’s first equity investments and the brewery is still going strong, having celebrated its 140th anniversary in 2018.

Despite this promising start, the Trust’s directors found it much more difficult than they had expected to apply their principles of diversified investment and get good results. Looking back over the previous years in 1901, Robin Benson confessed:

Over its first decade the Trust experienced fluctuating market conditions, but not only had it survived but its founding investors received healthy and increasing dividends. The early years of the 20th century saw the Trust’s focus on investing overseas come into its own, as a series of volatile technology and commodity booms, especially in rubber –needed in vast quantities for the newly mass-produced motor car– along with Lloyd George’s ‘supertax’ aimed at the wealthy, made things financially shakier at home.

As Robin put it: ‘All our experience is in favour of sending capital abroad…[this] cannot be shelved and left to work itself out...’

Of course, there was a far bigger storm on the horizon. In early 1913 Robin stated:

Eighteen months later, war broke out. Even the exodus of the bulk of the Trust’s staff to join the services had little effect, as there wasn’t much business to oversee.

Throughout the war Robin acted as an unofficial City adviser: in May 1916 he prepared a ‘Resume of War Finance’, widely circulated and well received in the City, and he was instrumental in winning the Treasury round to a banking scheme to foster British enterprises and investment in Italy.

The end of the war brought not just financial but personal relief to Robin Benson, as miraculously all three of his sons returned from serving their country more or less unscathed.

Robin died in April 1929. He left the Trust in good shape, with investments in government and state securities, municipal bonds, home railways, mortgage bonds, North American railways and colonial and foreign railways, numerous real estate companies, many dozens of industrials and financials at home and abroad, and a coterie of ‘Miscellaneous’ holdings ranging from the Italian Public Utility Credit Institute Secured Gold Bonds to the Telephone Company of Perambuco.

Six months later, Wall Street crashed.

The fact that the Trust was invested in 495 securities across the world held it in good stead throughout the Depression, but general falls in stock value couldn’t be avoided. Again, the General Reserve Account was the company’s saviour: it easily covered all depreciations on the book value of investments.

By 1934, incoming chairman Norman Dickson was able to report ‘a decrease of £157,895 in the depreciation’, and the situation continued to improve. As the 1930s drew to a close the Trust’s dividend stood at 7.5%; a far cry from the peak dividend of 14% at the beginning of the decade, but as Norman sagely put it:

In early 1939 the Trust bought Elms Court, a house outside Cheltenham, as a potential war-time base and document store. Six months later, the week before the declaration, Company Secretary Frank Wooldridge along with two men and two women were sent off to Cheltenham with instructions to, ‘take your typewriter and enough stuff for a week.’ They would remain there until the end of the war, while a skeleton crew stayed in London. After one particularly severe night of air raids the London staff, all of whom had made wills, realised that it wasn’t very sensible to appoint each other as executors. So they sat down amidst the rubble to make new wills, appointing their colleagues in Cheltenham as executors instead.

With the markets basically not functioning, no investment valuations could be made and income receipts from portfolio investments were way down. No matter: revenue reserves were used to contain the annual reduction. As Norman Dickson said:

By 1945 Britain’s finances were almost in tatters. The pound was worth half its 1914 value and the incoming Labour government embarked upon a huge nationalisation programme involving the Bank of England, the coal, gas, electricity and steel industries, transport, the docklands and civil aviation authority.

Then, to cap it all, the winter of 1947 was the worst since 1881. It looked like the Trust, under new chairman Con Benson (son of Robin) – appointed after the death of Norman Dickson in 1945 – was facing a long road to financial recovery.

After the war the Trust’s portfolio became more than 90% invested in ‘Great Britain and the Colonies’, partly due to the government’s requisitioning of dollar securities during the war (this focus on UK investments arguably formed the foundation stone for the shape of the Trust today). In 1949 the Trust noted that the valuation of its investments that year was £4,005,175.

By 1955 this number had increased to £7.4 million and the chairman was able to report annual dividends of between 19% and 24%. Financial recovery and then some in a decade? Not bad. Jump forward 15 years and The Merchants Trust started the 1970s with gross assets of some £45.1 million. A good thing too, as the company had entered a tumultuous decade...

Past performance is no indication of future returns.

The following three decades started with the bear market of 1973/4 and ended with the tech boom, and saw the Trust’s fortunes rise from a low of £34 million in 1972 to a high of £421 million in 1998, a bottom line achieved in large part through investing early and enthusiastically in the new industrial sector of North Sea oil in the 1970s and ‘80s, and taking a decidedly cautious approach to investing in tech.

Past performance is no indication of future returns.

This last policy took a serious sticking-to-guns attitude on the part of the Trust: when so many other portfolio managers were gleefully watching their internet start-up holdings reap huge returns, the Trust stood firm. ‘The Directors are satisfied that…the current policy can continue to achieve good returns in the years ahead,’ new chairman Colin Black calmly noted in the 1999 accounts. An entirely sensible policy, as it turned out. Meanwhile, the Trust’s reserves amounted to £10.3 million, or a little over 10p per share.

Simon Gergel, Portfolio Manager, on the Trust’s diversified portfolio over time

Simon Gergel, Portfolio Manager, on the Trust’s diversified portfolio over time

The Trust’s top five investment holdings at this time were in Glaxo, Shell, NatWest, BT and Bank of Scotland: evidence of the evolution of the Trust’s portfolio from a global vehicle to one whose objective had become:

The Merchants Trust entered the new millennium in good shape. Then came 2001…

The year 2000 started with the FTSE 100 Index at an all- time high, but then the internet bubble burst. Then there were further market declines after the tragic events in New York and Washington on 11th September 2001. The 2001 - 2003 period was a severe bear market, with the FTSE 100 falling by 10% in 2001 and by a further 31% the following year. A few years later, there was the global banking crisis to contend with. Yet the Trust withstood it all, and dividend distributions continued to rise. That reserves fund coming into its own yet again.

In 2006, current Portfolio Manager Simon Gergel took over the reins at the Trust. During his period of stewardship, Simon has successfully focused on delivering results for shareholders in line with the Trust’s founding principles.

The Trust’s Board also more actively reflects the times in which we live, with two of its five members being female.

The Merchants Trust today has a very different investment strategy to its beginnings 130 years ago, but its purpose and its methods of weathering economic storms have remained steadfast: attention to detail, diligent research, caution and the prudent accumulation of reserves. These have been at the heart of the Trust from its first day, helping it not only to survive every conflict and crisis in well over a century, but to generate notable long-term returns for investors. And there’s every reason to believe that these policies will stand the Trust in good stead for the next 130 years. Long may The Merchants Trust continue.

Past performance is no indication of future returns.