Holly Cook: Hello and welcome to Morningstar. Joining me today for 'Why Should I Invest with you?' is Guy Anderson, he is Co-Manager of the Mercantile Investment Trust (MRC).
Guy, thanks for joining me.
Guy Anderson: Good morning.
Cook: So let's start off looking to more kind of macro holistic view. You are investing primarily in mid and small caps. If you look at the performance of your trust it's perhaps been a bit volatile year-from-year. Would you say that’s a typical characteristic of investing in this area or has that something to do with the process that you're applying?
Anderson: I think it is characteristic of investing in the mid and small cap part of the market. But I think the key thing to remember is that over the long-term U.K. mid and small caps have significantly outperformed their larger cap brethren. So for example if you look at some of the Numis data since 1955, the magnitude of the difference is quite frankly astonishing. Whilst mid and small caps don’t outperform every year. Over that period they have outperformed in two out of three years and that’s something that we think can continue going forward.
Cook: So you've been co-managing the fund now for three years. Now, when round about when you joined the process was changed slightly. Could you explain a little bit about what's changed and how that’s impacted the fund?
Anderson: Sure. The underlying investment philosophy that we follow hasn’t changed. We ultimately are looking for attractively valued companies that operate in positive end markets with good dynamics. What we have done is, we've expanded the team somewhat so we've gone from a two person team to a four person team and that gives us greater time to focus on the individual companies in which we're investing and thus be more analytically rigorous on our work and spend more time doing the important due diligence in the companies.
Cook: So when you are coming to, actually trying to identify these attractive stocks for your portfolio, are there any particular sectors within the mid cap and small cap area that you typically look at or perhaps you are finding interesting at the moment?
Anderson: Sure. I think the first thing to say is, overall there are no sectors that are no go areas for this portfolio. So we will invest across the full range of industry sectors, however at any individual point in time that will vary as there will be some sectors that we think are more attractive than others clearly based on the bottom up stock selection that we perform.
When we look at the portfolio today. We're very skewed towards the consumer services sector where we think there is a positive long-term dynamic or short-term and medium-term dynamic. But we're negatively positioned in the more commodity facing industries such as the oil and gas companies, metals and mining and the industrial companies that are servicing those industries.
Cook: So given those sort of sector dynamics, obviously investing in your funds is for a long-term investor. What sort of view or investment horizon would you typically expect an investor to have to sort of stomach some of that volatility that you get investing in this area?
Anderson: Absolutely, I think this is a long-term investment vehicle and that absolutely suits the investment trust characteristics. When we make investment decisions at a fund level, we're typically thinking about two year investment horizon albeit it can vary. We've got companies that have been in the portfolio for more than a decade and we've got companies that will come in and out as facts change and the investment conclusions change. As far as end investors investing in our portfolio are concerned. I think the longer the time horizon the better.
Cook: Guy Anderson, thanks very much for sharing your insights with us.
Anderson: Thank you.
Cook: For Morningstar, I'm Holly Cook. Thanks for watching.
