9th Oct 2026 15:28
(Alliance News) - Guy Anderson, portfolio manager of Mercantile Investment Trust PLC, said on Friday that low valuations can create attractive investment opportunities among UK small- and mid-cap companies.
Speaking at the Association of Investment Companies Showcase, Anderson said Mercantile, managed by JPMorgan Funds Ltd, seeks long-term capital growth by investing in UK-listed small- and mid-sized companies with strong competitive advantages, attractive economics and improving long-term growth prospects, while keeping an eye on valuation.
"At the moment, with the UK being so cheap, there are many interesting value opportunities," he said.
Anderson acknowledged signs of weakness in domestic consumption, which accounts for around 50% of the trust's underlying portfolio revenue. However, he said industrial activity was picking up, particularly in areas benefiting from investment in artificial intelligence and data-centre infrastructure.
UK equities are trading near the lower end of their historical valuation ranges, he said, with small- and mid-cap stocks particularly cheap relative to larger companies.
He also highlighted an acceleration in takeover activity involving UK-listed companies. Incoming mergers and acquisitions in 2026 were running at roughly twice the usual rate, based on year-to-date figures, while average acquisition premiums stood at 40%, compared with a long-term average of 30%.
"We have pulled back our exposure to the consumer discretionary component. We've increased our exposure to both financials and tech, but also industrials," Anderson said.
He cited Marlow, England-based provider of IT infrastructure products Softcat PLC as an example of the trust's investment approach. Mercantile has held a stake in the company since its initial public offering in 2015. Anderson said Softcat had consistently exceeded market expectations but suffered a significant share-price decline earlier in the year when investors began to view it as a potential loser from AI adoption.
"It's very hard to disprove a narrative, but having met with the company and been fairly well convinced that they were not indeed an AI loser, we took advantage of its share price weakness in March and added to that position quite significantly," he said. "So it is quite pleasing to see them deliver pretty strong growth through the course of this year.
"Softcat has been one of the top contributors this year."
Softcat upgraded its full-year outlook in September, saying it expected underlying operating profit to grow at a high-teens rate, compared with its previous mid-teens forecast, with gross profit growth moderately ahead of that.
Anderson also highlighted Nottingham, England-based Games Workshop Group PLC, owner of the Warhammer brand, citing its loyal customer base and strong business model.
"It's an incredibly strong business with a customer base that is deeply engaged and who are hobbyists, so they are genuine customers for life, and that has enabled this business to grow from its origins 50 years ago now up to being a FTSE 100 company," he said.
He added that Games Workshop's partnership with Amazon Content Services LLC, a subsidiary of Amazon.com Inc, to develop live-action content based on its intellectual property could broaden the brand's reach and stimulate demand. The agreement was first announced in 2023, and Games Workshop said in 2024 that development "may take a number of years."
"I think there's a pretty exciting future ahead," Anderson said.
Shares in Mercantile Investment rose 1.5% to 272.00 pence in Friday's afternoon trading in London.
By Camilla Borri, Alliance News reporter
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