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) looks to generate long-term capital growth by investing in a concentrated portfolio of small- and mid-cap companies in Europe (excluding the UK). Income is an important component of EAT’s total return and the board has adopted a high distribution policy, meaning that 6% of the net asset value (NAV) is paid out to investors over each financial year, from capital when necessary.

The trust is managed by Sam Cosh (lead manager) and Lucy Morris, who employ a quality growth approach where that growth has to be bought at what they deem to be a reasonable price. The aim is to be highly active and concentrated, with minimal attention paid to the benchmark.

As we discuss in the Portfolio section, the managers’ conservative approach to valuations resulted in the trust having cash in the portfolio and no gearing when the COVID-19 pandemic and policy response caused a sharp decline in European equities. Going into the crisis they initially reduced risk and increased liquidity further by selling some economically sensitive stocks and some financial holdings. The subsequent speed of the market decline created an opportunity to reinvest this cash into a number of good businesses at what they deemed exceptionally attractive prices. The result of this has been a portfolio with higher-quality characteristics and improved performance, as we discuss in the Performance section.

Currently, the discount sits at 10.3% in comparison to a sector weighted average of 10.9%. This is the second-narrowest discount in the AIC European Smaller Companies sector, but considerably wider than the trust’s five-year average discount of 4.4%.

Kepler View

EAT offers one of the most attractive yields in the European sectors, with 6% of the NAV paid out annually. Due to the capacity for this to be paid from capital, the trust is not dependent on earnings like most trusts and as such could perhaps be considered likely to be more reliable for income-dependent investors. Alongside this, due to the underlying income coming from smaller companies and not from the usual companies or trusts, EAT can be seen as a diversifier and can be used in conjunction with larger-cap trusts.

The outlook for Europe is cloudy, with COVID-19 and the Brexit outcome current concerns. However, the managers’ focus on quality should leave the trust in a stronger position than most. As we discuss in the Portfolio section, the average company in the portfolio boasts higher returns on equity and gross margins, along with considerably less debt relative to the index. The majority of the companies in the portfolio have sound balance sheets and should weather uncertain conditions much better than their counterparts. This has been reflected in the turnaround in performance this year, with the trust delivering returns in excess of the benchmark throughout the volatility of 2020.

The trust also has a number of catalysts that could mean we will see its discount of 10.3% narrow significantly, including the combination of improved performance, high dividend yield of around 6% and increased investor enthusiasm for European equities.

Bull
Bear
Excellent long-term track record
Performance has struggled since the Brexit referendum
Source of diversified income for investors
Continued political uncertainty surrounds Europe
Opportunity for discount to narrow
Smaller companies can be considered more volatile in uncertain conditions


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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