The Mercantile Investment Trust Plc

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The Mercantile Investment Trust plc

September 2020

Guy Anderson, Portfolio Manager

Image source: J.P.Morgan.

FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Agenda

Portfolio strategy

Outlook and positioning

Summary

1 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Portfolio strategy

2 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Overview of portfolio strategy

Mercantile: a pure-play* solution to UK mid and small cap investing A diversified portfolio of mid and small cap companies with strong long-term relative performance

The Mercantile Investment Trust plc Annualised return (net of fees) vs benchmark

 Team of 6 covering UK SMID^ 10% Mercantile Benchmark Specialist  14 years average industry experience Team 5.1  350+ management meetings per annum 5% 1.9 1.0 0% Large and  Portfolio size** £1.8bn Liquid  Liquidity** ADV ~£3m -3.5 -3.0 -5%

-10% -9.0 Low cost  Ongoing charges** 0.44% 1 year 3 years (p.a.) 5 years (p.a.) Excess +6.1 +4.1 +3.1 return (%)

Source: (LHS) J.P. Morgan Asset Management; ADV = average daily volume (last 12 months), from Bloomberg; Ongoing charges reflect FY19 charges. Data as at 31 August 2020. Performance data using net asset value per share, cum income, with debt at par value in GBP. Geometric excess returns. Please note Benchmark Indices do not include fees or operating expenses and are not available for actual investment. Benchmark is the FTSE All-Share (ex FTSE 100, ex Investment Companies) Index. The benchmark is for comparative purposes only. * Pure play refers to the fact that this vehicle provides investors with access to both mid and small cap in one vehicle. ^Small and medium sized firms. ** As of 31 July 2020.

Past performance is not a reliable indicator of current and future results.

3 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Overview of portfolio strategy

Long term performance A track record of outperformance

Cumulative returns – August 2012 to August 2020

340 NAV Share Price FTSE All Share ex 100 ex IT FTSE 100

290

+145% 240 +123% 190 +85%

140 +42%

90 Aug 12 May 13 Feb 14 Nov 14 Aug 15 May 16 Feb 17 Nov 17 Aug 18 May 19 Feb 20

… 10.5% NAV CAGR* over 8 years

Source:J.P. Morgan Asset Management. Rebased to 100 at 31 August 2012. Performance data has been using net asset value per share, cum income, with debt at par value in GBP. Please note Benchmark Indices do not include fees or operating expenses and are not available for actual investment. *Compound annual growth rate. Past performance is not a reliable indicator of current and future results.

4 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Outlook and positioning

5 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Outlook and positioning

Economic outlook: pandemic woes visible to all

UK GDP growth forecasts for 2020 at historic lows

15%

10%

-5% IMF, -10.2%

-10% NIESR, -10.1%

OBR, -12.4%

-15% 1900 1920 1940 1960 1980 2000 2020

Sources: Panmure Gordon, data as of 3rd September 2020 Past performance is not a reliable indicator of current and future performance.

6 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Outlook and positioning

UK equity valuations reflect this uncertainty The UK looks cheap when compared with other markets

10-year cyclically-adjusted P/E ratio

30 29.0

13.0 10 10.3

0 2000 2010 2020 US 10Y CAPE UK 10Y CAPE EZ 10Y CAPE

Source: Panmure Gordon Research. Data as at 2nd September 2020. CAPE is the cyclically adjusted price-to-earnings ratio. EZ=Euro Zone. Past performance is not a reliable indicator of current and future results.

7 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Outlook and positioning

Healthy recovery seen in pockets of the economy

UK retail sales volume ex. auto fuel UK Purchasing Managers Index

115 70

110 60

105 50

100

95 Manufacturing PMI 30 90 Services PMI

20 85

80 10 2010 2013 2016 2019 2005 2008 2011 2014 2017 2020

Sources: left chart: ONS, with data from September 2010 to July 2020; right chart: Bloomberg, data from January 2005 to August 2020. .

8 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Outlook and positioning

However, elements of weakness and uncertainty persist

UK GfK consumer confidence BOE investment intentions

8 4

0 2

-8 0

-16

-2 -24

-4 -32

-40 -6 2005 2008 2011 2014 2017 2020 2005 2007 2009 2011 2013 2015 2017 2019

Sources: left chart: GfK, with data from July 2005 to July 2020; right chart: Bank of England, with data from July 2005 to July 2020, data prior to Q4 of 2017 has been constructed by the Bank of England by weighting together the discontinued manufacturing and services series by their shares of GVA, turnover, employment or investment.

9 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Outlook and positioning

Stock selection and sectoral positioning reflect dynamic environment Active and absolute sector positions as of 31 July 2020 Benchmark FTSE All-Share ex 100 ex IT

Relative to benchmark (%) Computacenter 10 Softcat 8.0 Dunelm 8 Bellway Team17 Premier B&M Countryside Foods 6 Properties Games 4.4 Workshop Greencore 3.9 4 2.9 2.6

-2 -2.4 -2.5 -2.5 -2.7 -2.8 -4 Software & General Retailers Household Goods & Leisure Goods Food Producers Real Estate Pharmaceuticals & Health Care Real Estate Travel & Leisure Computer Services Home Construction Investment Trusts Biotechnology Equipment & Investment & Services Services

Portfolio Weight (%) 10.58 10.59 7.14 4.03 5.50 8.95 0.45 0.00 0.00 4.37

Source: J.P. Morgan Asset Management, Factset. The investment trust is actively managed. Holdings, sector weights, allocations and leverage, as applicable, are subject to change at the discretion of the Investment Manager without notice.

10 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Outlook and positioning

Portfolio positions

Stock positioning as of 31 July 2020 Benchmark FTSE All-Share ex 100 ex IT

Top 10 overweight positions Top 10 underweight positions

Portfolio Benchmark Relative Portfolio Benchmark Relative Stock Stock weight (%) weight (%) position (%) weight (%) weight (%) position (%)

Intermediate Capital Grp 3.3 0.0 3.3 Direct Line Insurance Grp 0.0 1.6 -1.6

Polymetal International 3.1 0.0 3.1 ConvaTec Group 0.0 1.3 -1.3

Softcat 3.5 0.6 2.8 Weir Group 0.0 1.2 -1.2

Computacenter 3.2 0.5 2.6 Spectris 0.0 1.2 -1.2

Bellway 3.8 1.2 2.6 Dechra Pharmaceuticals 0.0 1.1 -1.1

Spirax-Sarco Engineering 2.5 0.0 2.5 Centrica 0.0 1.1 -1.1

Avast 2.4 0.0 2.4 IMI 0.0 1.1 -1.1

Games Workshop Group 3.4 1.1 2.2 Quilter 0.0 1.0 -1.0

Dunelm Group 2.6 0.5 2.1 IG Group Holdings 0.0 1.0 -1.0

National Express Group 2.0 0.2 1.8 Hiscox 0.0 1.0 -1.0

Total 29.6 4.2 25.4 Total 0.0 11.6 -11.6

11 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Outlook and positioning

Gearing remains at an elevated level The Mercantile Investment Trust plc as of 31 August 2020 Historic gearing levels vs benchmark

Gearing level Index level 20% Month end gearing levels - LHS FTSE All Share ex 100 ex IT (total return index) - RHS 9000

8000 15% 7000

10% 6000

5000 5% 4000

0% 3000

2000 -5% 1000

-10% 0 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20

Source: Bloomberg, J.P. Morgan Asset Management. As at 31 August 2020 (weightings exclude cash/cash equivalents). Investment trusts may utilise gearing which will exaggerate market movements both down and up which could mean sudden and large falls in value. For further details, please refer to the trust’s annual report and accounts. Gearing is the ability to borrow money to invest that money on behalf of the shareholders.

12 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Summary

13 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Summary

Summary

 Near-term outlook highly uncertain but reflected by depressed market valuations

 Disciplined investment process, with portfolio positioned to navigate macro uncertainty

 Strong long-term investment performance versus benchmark and peers

The Mercantile Investment Trust plc provides a pure-play solution to UK mid and small cap investing

14 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Appendix

15 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Appendix

Opportunities for extraordinary growth

Nimble business models

Innovators or disruptors

Rapidly growing new markets

WH Smith Softcat Countryside Properties

Image source: Shutterstock. The securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.

16 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Appendix

A strong track record of income generation

Dividend policy smoothing income return

9 Pence per share

0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Dividend Special dividend Earnings per share Net revenue reserves

… 8.4% dividend per share CAGR over 29 years

Source: J.P. Morgan Asset Management. All figures based on the current trust total shares, after the 10 for 1 stock split in mid 2018. Data as at 31 January 2020. Past performance is not a reliable indicator for current and future results.

17 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Appendix

Our investment philosophy Rigorously identifying investments with specific characteristics

Is it a good business? We consider the quality of the company through its profitability, sustainability of earnings and capital allocation discipline

Is it attractively valued? We look at a company’s valuation to assess if its future prospects have been incorrectly estimated by the market

Is the outlook improving? Assessing the operational momentum of the business and how is this being reflected in expectations

Balancing expectations versus outcome

18 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Appendix

Differentiated geographic positioning Geographic revenue mix as of 31 July 2020

FTSE 100 FTSE All-Share ex 100 ex IT The Mercantile Investment Trust plc

Rest of Rest of Rest of World World World United 4% 2% 10% Europe Europe Kingdom ex UK ex UK 23% 11% 13% North Europe North America ex UK America 16% 14% 16%

United Kingdom United Emerging 53% Kingdom Markets Emerging 57% North 26% Emerging Markets America Markets 12% 27% 16%

Source: J.P. Morgan Asset Management, Factset. As of 31 July 2020. Portfolio weightings calculated as % of invested excluding cash. The portfolio is actively managed. Holdings, sector weights, allocations and leverage, as applicable, are subject to change at the discretion of the Investment Manager without notice. Absolute positions are not adjusted for gearing.

19 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Appendix

Portfolio positioning The Mercantile Investment Trust plc as of 31 July 2020 Benchmark FTSE All-Share ex 100 ex IT

Geographic revenue mix Absolute sector positions Rest of World 2% 5.5% Basic Materials Mercantile Europe ex UK 3.5% 13% Benchmark Consumer Goods 18.6% 9.2%

North America Consumer Services 19.4% 16% 16.3% Financials 28.3% 31.0% Health Care 0.5% 5.4% Industrials 26.2% 26.8%

Oil & Gas 0.0% 1.6% United Kingdom Technology 10.6% 3.5% Emerging 57% Markets Telecommunications 1.1% 12% 1.0% Utilities 0.0% 1.7%

20 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Appendix

Portfolio vintage analysis The Mercantile Investment Trust plc Proportion of portfolio held in previous years (% current portfolio weight)

100

70 2019 60 2018 2017 50 2016 40 2015

0 Year 0 Year -1 Year -2 Year -3 Year -4 Year -5 Year -6 Year -7 Year -8 Year -9 Year -10

Source: J.P. Morgan Asset Management, as at 31 December 2019

21 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Appendix

Calendar year performance The Mercantile Investment Trust plc Benchmark FTSE All-Share ex 100 ex IT

Absolute and excess returns (net) versus FTSE All Share ex. 100 ex. ITs index

60% 53.9% NAV Share price Benchmark 50% 38.9% 40% 30.0% 29.0% 30.2% 28.9% 30% 22.2% 17.9% 20% 12.1% 10% 5.9%

0% -1.7% -10% -3.7% -15.0% -20% -15.1% -17.1% 2015 2016 2017 2018 2019

NAV excess +9.0 -7.2 +9.4 -0.2 +7.7 (%)

Source: J.P. Morgan Asset Management. GBP, as at 31 December 2019. Geometric excess returns. Performance data has been calculated on NAV to NAV basis (cum income, debt at PAR value), including ongoing charges and any applicable fees, with any income reinvested, in GBP. Please note Benchmark Indices do not include fees or operating expenses and are not available for actual investment. Past performance is not a reliable indicator for current and future results.

22 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Appendix

Rolling period performance

The Mercantile Investment Trust plc as of 31 August 2020 Market value* The Mercantile Investment Trust plc GBP 1.8bn Performance, net of fees (%)

One Three Five Three months YTD year years p.a. years p.a.

Mercantile NAV (cum income, debt at par value) 5.3 -18.8 -3.5 1.0 5.1

Mercantile share price 2.3 -24.4 -0.4 1.9 5.3

FTSE All-Share ex. FTSE 100 ex. Investment Trusts 4.3 -21.3 -9.0 -3.0 1.9

Excess return (NAV) +1.0 +3.2 +6.1 +4.1 +3.1

Calendar year performance, net of fees (%)

2015 2016 2017 2018 2019

Mercantile NAV (cum income, debt at par value) 22.2 -1.7 29.0 -15.1 38.9

Mercantile share price 30.0 -3.7 30.2 -17.1 53.9

FTSE All-Share ex. FTSE 100 ex. Investment Trusts 12.1 5.9 17.9 -15.0 28.9

Excess return (NAV) +9.0 -7.2 +9.4 -0.2 +7.7

Source: J.P. Morgan Asset Management. Geometric excess returns. Performance data has been calculated on NAV to NAV basis, including ongoing charges and any applicable fees, with any income reinvested, in GBP. Past performance is not a reliable indicator of current or future results. *As of 31 July 2020.

23 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Appendix

Performance attribution The Mercantile Investment Trust plc for 1 year ending 31 July 2020

Stock attribution

Relative Stock Impact Relative Stock Impact Top 10 contributors Top 10 detractors weight (%) return (%) (%) weight (%) return (%) (%)

Games Workshop Group 2.25 98.76 1.77 SSP Group 1.56 -70.47 -1.25

Polymetal International 2.30 99.38 1.71 National Express Group 1.90 -62.28 -1.24

Avast 1.30 57.90 0.95 Pennon Group Not Held 46.26 -0.95

Softcat 2.20 35.38 0.92 WH Smith 1.32 -55.94 -0.66

Avon Rubber 0.87 150.15 0.80 Premier Oil 0.34 -80.96 -0.45

Computacenter 1.96 31.03 0.80 GVC Holdings -0.74 -17.88 -0.45

Micro Focus International Not Held -76.33 0.75 ConvaTec Group Not Held 33.65 -0.38

Dunelm Group 1.39 41.70 0.66 Centamin Not Held 65.00 -0.37

Tullow Oil Not Held -86.92 0.62 IG Group Holdings Not Held 37.72 -0.35

Cineworld Group Not Held -84.62 0.58 Spirent Communications -0.45 81.13 -0.30

Source: Factset. Data is gross of fees in GBP. Attribution results are for indicative purposes only. The portfolio is actively managed. Holdings, sector weights, allocations and leverage, as applicable, are subject to change at the discretion of the Investment Manager without notice. Past performance is not a reliable indicator of current and future results.

24 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Appendix

Share price discount The Mercantile Investment Trust plc Net Asset Value (NAV) vs. Share Price

300 Net Asset Value Last Price 250

200

150 Aug-17 Feb-18 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20

Premium/Discount to NAV (%)

15% 10% 5% 0% -5% -10% -15% -20% Aug '17 Feb '18 Aug '18 Feb '19 Aug '19 Feb '20

Source: Bloomberg. Data from 31 August 2017 to the 31 August 2020. Past performance is not a reliable indicator of current or future results.

25 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Investment objective and risk profile The Mercantile Investment Trust plc (the Company)

Investment objective The Company aims to achieve capital growth through investing in a diversified portfolio of UK medium and smaller companies. It pays quarterly dividends and aims to grow its dividend at least in line with inflation. The Company’s gearing policy is to operate within a range of 10% net cash to 20% geared.

Key Risks

 External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions.

 This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down.

 This Company may also invest in smaller companies which may increase its risk profile.

 The share price may trade at a discount to the Net Asset Value of the Company.

 The single market in which the Company primarily invests, in this case the UK, may be subject to particular political and economic risks and, as a result, the Company may be more volatile than more broadly diversified company's.

 Companies listed on AIM tend to be smaller and early stage companies and may carry greater risks than an investment in a Company with a full listing on the London Stock Exchange.

 The key risks facing the Company and the mechanisms in place to monitor and measure these risks are set out in the Company’s annual report, a copy of which is available from its website, www.jpmam.co.uk/investmenttrust.

Please refer to the Investor Disclosure Document, latest annual report, and Key Information Document (KID) for more information relating to the Company.

26 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION Important information

For Professional Clients only – not for Retail use or distribution.

This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy.

Investment is subject to documentation. The Investor Disclosure Document, Key Features and Terms and Conditions and Key Information Document can be obtained free of charge from JPMorgan Funds Limited or www.jpmam.co.uk/investmenttrust. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.

Material ID: 0903c02a8260809e

27 | FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION