High gearing on Merchant Trust to hit performance

Expensive gearing is likely to constrain capital performance in the £561.3m Merchants Trust, according to Gerrard analyst Robert White. The fund is trading at a premium to NAV of around 2.1%, towards the top of the 12.2 % discount to 4.2% premium range of the past 12 months. White said Merchants is 32% geared by expensive long-term debt, which is valued at par in daily NAV calculations, but would actually be trading at a large premium due to the high average coupon.