Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by European Assets. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
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Overview

European Assets Trust (EAT) offers investors a concentrated portfolio of European small and mid-sized companies, with an objective of maximising total return. Led by lead manager Sam Cosh, who is supported by Lucy Morris, EAT follows a bottom-up process where companies are selected through analysis of their financials, management and fundamental growth trajectory (a combination of sectoral themes and competitive advantages).

Being a bottom-up strategy, macroeconomic factors play no role in the team’s decision-making, with a company’s quality and growth profile being the overriding considerations. The team are also highly sensitive to the valuations of their holdings, seeking to ensure that the portfolio is not one of ‘growth at any price’. We outline their investment process in full detail in the Portfolio section.

While the portfolio is typically one of low turnover, 2020 saw a period of unusual trading activity as the team used the market crash to enter into new holdings at what they identified as very attractive valuations. These trades have been a major contributor to EAT’s recent outperformance, while EAT has also demonstrated strong outperformance over ten years, as we outline in the Performance section.

EAT continues to trade at a discount, albeit one which is narrower than its sector average, and the trust’s discount is currently 8.5%. EAT also offers an attractive dividend profile, paying out 6% of its NAV over the financial year, by tapping into both its income and capital reserves. This has led to it having the highest yield of any trust in both the AIC European Smaller Companies and AIC Europe sectors.

Kepler View

EAT’s managers have demonstrated success as stock-pickers in their small-cap universe. Due to the number of under-researched companies, there is clear potential for active management to add value. Given the high active share and primarily stock-driven returns, we think investors can view this portfolio not only as a source of alpha, but also as a diversifier to most pre-existing European allocations.

We also view the income profile of EAT as attractive, with the dividend paid from capital. This is not only due to its market-leading yield, but also because of the underlying nature of the portfolio. We think it will remain unlikely that an income-orientated investor would be able to find another quality growth portfolio with a similar yield, given the low income typically associated with the sector.

Yet as a result of EAT’s sector and style agnosticism, as well as its strict approach to valuations, there are clear market environments where the trust will underperform. This will most likely be the case during momentum- or trend-driven markets. Similarly, if we were to see a prolonged period of recovery in value stocks, then we think EAT would be unlikely to fully capitalise on the resulting market rally.

Despite EAT’s long-term performance and examples of successful stock picking (as demonstrated by the team’s COVID-19 trades), the shares continue to trade at a discount to NAV. With potential incoming tailwinds for Europe such as the vaccine roll-out and fiscal stimulus, there are potential catalysts for the discount of the sector and of EAT to narrow.

Bull
Bear
High active share and stock-selection-driven returns offer source of diversification
Could underperform in factor-driven markets, e.g. value stock recovery
Highest yield in both Europe and European Smaller Companies peer groups
Valuation sensitivity can hinder returns during periods of strong price momentum
Good long-term track record
Small-cap investing is historically associated with enhanced volatility
Continue to Portfolio

Fund History

06 Nov 2024 Divi Up!
Enhanced dividend strategies are growing in popularity, what do they offer investors?
29 Oct 2024 Fund Analysis
EAT offers a high yield and a diverse European small- and mid-cap portfolio…
11 Jul 2024 Flash update: European Assets
EAT’s investment strategy is being refreshed under its new manager…
24 Apr 2024 Is ESG finished?
Two of our analysts debate whether it’s time to give up on ESG…
06 Feb 2024 Fund Analysis
EAT's high dividend and exposure to European small-caps make for a distinctive recovery play...
21 Jun 2023 Ça plane pour moi
Some of the world's biggest companies are doing just fine in Europe, yet investors shun the region. Time for a rethink...
24 Apr 2023 Fund Analysis
European small caps are at a ‘double discount’, according to EAT’s managers…
22 Sep 2022 Fund Analysis
EAT offers a high yield from high-quality European small caps…
13 Jul 2022 Ready player one
We wonder where, if anywhere, should investors look for returns after a tumultuous first half of the year…
01 Feb 2022 Fund Analysis
EAT has the return profile of a high-quality growth portfolio and the highest yield of any European trust…
19 Jan 2022 Apples and pears
We examine the relationship between the demand for open- and closed-ended funds, and ask whether investor behaviour can be predicted...
09 Sep 2021 What next for European equities?
After a strong period for European equity markets, we ask whether this trend can continue…
19 May 2021 Fund Analysis
EAT offers the enviable combination of sector-leading yield with good long-term returns driven by European small caps…
04 Feb 2021 Eurovision 2021
Eight charts to guide investors through Europe...
23 Nov 2020 Fund Analysis
EAT offers investors a high level of income from small- and mid-cap companies in Europe…
View all

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Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.