I'm a fund manager... this is the one share I'd hold for the next decade, says Mercantile Trust's Guy Anderson

Each month, we put a senior fund or investment manager to task with tough questions for our I'm a fund manager series to find out how they manage their own money.

We want to know where they'd invest for the next year - and next 10 years - and what pitfalls to avoid.

We also quiz them about Nvidia, gold, and bitcoin and their greatest ever investing mistake.

This week, we spoke to Guy Anderson, fund manager at Mercantile Investment Trust.

The fund's objective is to achieve long-term capital growth by investing in medium and small sized companies, most of which are listed on the London Stock Exchange.

Anderson and his co-manager Anthony Lynch look for high-quality businesses at attractive valuations, rather than making big calls on the economy, sectors or markets.

The Mercantile Investment Trust currently trades at a 9.8 per cent discount to its net asset value. It offers a dividend yield of 3.2 per cent and has a total annual management charge of 0.45 per cent on market capitalisation. There is no performance fee.

Year-to-date its share price is up 4.75 per cent and compared to this time five-year ago, it's up 33 per cent.

Games Workshop is a proven long-term investment. It owns Warhammer, a fantasy world that has become a global brand with a deeply loyal fan base.

That audience is now set to expand even further thanks to a deal with Amazon to bring Warhammer stories to film and television.

Over time it has delivered consistently strong profits and cash generation, which gives us real confidence in its ability to keep reinvesting and growing.

Since 2017, when we first invested, the shares have returned around 1,200 per cent for Mercantile Investment Trust investors.

With global recognition on the rise and dependable finances, it's the kind of business we're happy to back for the long-term.

We are particularly excited by Plus500 right now. It has successfully grown its customer base while continuing to generate strong profits and returning cash to shareholders.

The business also has ambitious plans to expand into the US, which could open up a major new growth market.

What's unusual about Plus500 is that market volatility, which usually unnerves investors, helps its business because it drives more trading activity.

That combination of robust economics, expansion potential and dependable cash generation makes it a standout opportunity in our view.

We're excited to see how the global giants of chipmaking keep pushing boundaries.

ASML, TSMC and Samsung Electronics are all vital to producing the advanced chips and components needed to power artificial intelligence, data centres and consumer electronics.

Demand for these technologies is not a short-term trend but something structural that will run for decades.

Yes, I think the UK market looks cheap and at an attractive entry point, particularly in the mid-cap space.

Historically, the FTSE 250 has traded at a premium to large caps and has outperformed over the long term, yet today it trades at around a 5 per cent discount to the FTSE 100.

In our portfolio we're finding more businesses we want to buy than to sell, which is often the best sign that value is there.

If stability improves and interest rates trend lower, mid and small caps should be well positioned to outperform.

Cranswick is one of the UK's leading food producers, best known for its pork and poultry products.

What sets it apart is the way it has invested heavily in new capacity and automation, which allows it to expand while at the same time improving profitability.

That discipline has given it a strong competitive edge, especially as rising labour costs have squeezed peers that are more highly leveraged.

Over the past five years, the shares have delivered a 66 per cent total return, showing how resilient the business has been even in a tough industry.

For us, it's a long-term holding that offers investors a rare blend of stability, steady income potential and growth.

We are invested in Bellway and view this as one of the better-positioned housebuilders in the UK today, despite evidence of recent slowdown in the UK property market amidst concerns of increased taxation and sticky interest rates.

The business has a strong track record of buying land and expanding outlets, and its conservative financial position gives us confidence it can ride out market cycles.

It's understandable that investors have favoured the big US tech firms in recent years, given their strong results.

But now the case for looking closer to home is stronger than it's been in years. Business fundamentals are improving, and yet prices haven't caught up.

We're finding more opportunities in the UK than at any time in recent years, particularly in mid and small sized companies.

The valuation gap with the US is huge, and even a flicker of renewed confidence could drive a big rerating for UK shares.

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I wouldn't point to a single UK company as the 'next Nvidia,' but Britain is a well-established tech hub and has plenty of businesses that can ride the wave of AI adoption.

Companies like Softcat, a reseller of IT products, software and services, and Computacenter, a leading tech services provider, are two good examples.

Both are well positioned to profit from the rising need for IT infrastructure and cloud solutions as companies step up their digital investment.

These aren't chipmakers, but they stand to gain from the huge capital spend flowing into AI and digital transformation.

We don't invest through a strict growth or value lens. For us, the focus is on quality businesses with improving outlooks that are trading at attractive valuations.

Right now, UK mid and small sized companies are unusually cheap compared with history, and that makes valuations supportive.

We prefer to take a blended approach, backing companies where the growth story isn't fully recognised by the market but where valuations give us downside protection.

For UK mid and small capsized companies, active management is essential. This part of the market is less researched and more inefficient, which creates opportunities for skilled stock pickers.

Our process is bottom-up, which means we focus on the individual companies – their finances, management, growth prospects – rather than making big calls on the economy, sectors or markets.

By meeting management teams and digging into the detail, we find businesses that can outperform regardless of the wider backdrop.

We're supported by J.P.Morgan's deep research resources, which help us pick winners that outperform over time.

We also have the flexibility to borrow money to invest through gearing, which means we can lean into opportunities when the odds are in our favour. Passive funds can't replicate that level of conviction and selectivity.

It has certainly been a fascinating part of recent history, but one I have witnessed from the sidelines.

I'd want to prioritise tax changes that support growth. New home construction has one of the strongest multiplier effects for the wider economy, creating jobs and boosting demand across supply chains.

For me, cutting both taxes and regulations that hold back investment in this space, would pay for itself through stronger growth.

3i Group is a private equity business that owns stakes in a diversified portfolio of companies.

We invested in the business in 2013, and since then it has provided a 30 per cent annualised return for the last 12-13 years.

3i targets sectors that have long-term sustainable growth and owns companies with a competitive advantage.

It's largest holding is the European discount retailer Action. Action has a track-record for delivering double-digit revenue growth, underpinned by same-store like-for-like sales growth and new store contributions, as it rapidly rolls-out additional stores across new and existing geographies.

Like many, we were too exposed to UK domestic consumer names in 2022 just as inflation spiked and mortgage rates rose.

That hurt performance and reminded us of the need for balance across the portfolio.

We also had to exit positions where the investment case broke down. Close Brothers was caught up in the car finance scandal, and Watches of Switzerland issued growth targets it couldn't meet.

In both cases, credibility was lost, and we acted quickly. The key lesson is not to let conviction become stubbornness. When the facts change, you have to change with them.

Intermediate Capital Group is an alternative asset manager that has grown the money it looks after on behalf of clients for many years.

That fee base translates into predictable, recurring cash flows, which in turn support reliable dividends.

We've held it in the portfolio for over a decade. Importantly, it provides investors with a stable dividend while also growing in the long-term, so investors aren't just buying income today, but also the prospect of it rising over time.