Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by European Opportunities. 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
EOT’s wide discount in historic terms may be an opportunity…
Overview

European Opportunities Trust (EOT) owns a portfolio of companies selected by long term manager Alexander Darwall because of their “special” qualities. In Alexander’s view, these companies are differentiated and have unique products which makes them likely a leader not just in Europe, but globally.

The concentration of the portfolio, which sees the top ten holdings represent 68% of total assets (as at 31/05/2022), is indicative of just how different EOT really is. However, in several other ways it also differs from the benchmark and peers, including its exposure to UK listed companies which at the time of writing is around 21% of NAV. By contrast, peers have largely Europe ex-UK mandates. As we discuss in the Portfolio section, EOT is also differentiated because it is neither strongly invested in very high growth stocks nor in ‘value’. EOT’s exposure to ‘core’ at 61% is higher than any other trust in the peer group. This does not mean that the portfolio is not exposed to growth companies, but perhaps in a less extreme way than several peers.

Historically, EOT has also been differentiated by performance. As we discuss in the Performance section, since inception Alexander has delivered impressive NAV total returns of 11.0% per annum, vs. 5.6% for the MSCI Europe Index (to 31/05/2022). 2020 provided lots of challenges to investors of all types, but for EOT the negative effect of the Wirecard investment meant that the trust underperformed peers and the index by a wide margin. 2021 seemed to mark a return to form, but EOT’s performance so far this year has been behind the benchmark, although it is ahead of the peer group average.

EOT has historically tended to trade at a premium to peers, and occasionally a premium in absolute terms. EOT and the rest of the peer group has seen a setback in terms of discount (see the Discount section), and EOT now trades on a discount of 12.3%, a level which has only been exceeded on a sustained basis in the depths of the global financial crisis of 2008 and 2009.

Kepler View

In our view, EOT is amongst the purer expressions of active management in the entire investment trust universe. Alexander has applied the same philosophy and stock-picking process since he launched EOT in 2000, and focusses entirely on fundamental research and his team’s understanding of companies developed through manager meetings and 26 years of investing experience in this sphere.

In absolute terms, a discount of 12% for an investment trust is wide. In fact, there are few other trusts with non-specialist mandates and exposure to liquid equities that have a wider discount. Long term investors may therefore see this as an opportunity. Certainly, there are plenty of worries on the horizon for equity investors, but Alexander has always invested in companies that in his view should be able to deliver good long-term returns, irrespective of the economic environment.

Short term, Alexander’s confidence in portfolio companies’ strong balance sheets and earnings power explains EOT’s current level of gearing of 9.4% (as at 31/05/2022). This is higher than it has been in the recent past, and reflects both the fall in the market which will increase gearing all things being equal, but also Alexander investing more capital as valuations have come back. Whilst there may be volatile periods ahead, over the long term his track record shows that his active management has added value. When equity markets are back on a surer footing, one might hope the discount may settle at a narrower level.

Bull

  • Strong long-term track record from a high-conviction, stock-picking manager
  • Pragmatic mandate enables manager to look for best European companies operating on a global scale
  • Potential for a re-rating given wide discount in absolute terms

Bear

  • Highly active portfolio can mean that at times, performance can lag the wider market
  • Gearing can exacerbate the downside, as well as boost returns on the upside
  • Devon Equity Management is a young company
Continue to Portfolio

Fund History

15 Jun 2022 Fund Analysis
EOT’s wide discount in historic terms may be an opportunity…
13 Oct 2021 Fund Analysis
After a torrid 2020, JEO is currently on track to deliver outperformance of the benchmark once again…
09 Sep 2021 What next for European equities?
After a strong period for European equity markets, we ask whether this trend can continue…
10 Mar 2021 Spring Conference '21
Audio and presentations from 21 of the UK’s leading investment trust managers…
04 Mar 2021 Slides and Audio: European Opportunities Trust
Download the presentation and listen to the audio from our 'Ideas for your ISA' Spring Conference on 02 March...
04 Mar 2021 Fund Analysis
Down, but not out: JEO has a challenging period of performance in 2020 but we think the double-digit discount presents an opportunity...
04 Feb 2021 Eurovision 2021
Eight charts to guide investors through Europe...
19 Aug 2020 Has the time come for Europe?
With mutual eurozone debt established all eyes are on the continent once more; but what will drive relative returns?
29 Jul 2020 To be, or not to be (geared), that is the question
Gearing is part of the toolkit that trusts use to outperform OEICs. But how is it best implemented?...
25 Jul 2020 Fund Analysis
A torrid 2020 for JEO means it is on an attractive discount...
22 Oct 2019 Fund Analysis
Run by one of the most successful fund managers in the investment trust universe, JEO offers exposure to exciting growth opportunities across Europe…
11 Sep 2019 Nanny knows best: how regulation is influencing returns
New research suggests disruption is threatened by increased regulation, with clear consequences for investment strategists...
17 Jul 2019 Ready for action
In the second part of our active management series, we assess the most active managers across the major closed-ended equity sectors…
24 Apr 2019 Nothing compares to EU
Currently one of the financial world's most unloved regions, we look at the sectors that are unique to Europe and how the persistent pessimism has presented attractive opportunities…
10 Apr 2019 Because they're worth it
With the rise of the passives putting more pressure on fees than ever before, we argue that performance fees could be the key to encouraging truly active investment trust managers...
27 Feb 2019 A marathon not a sprint
Our research shows that investment trusts' structural advantages give them a significant edge for investors seeking long term capital growth...
22 Feb 2019 Fund Analysis
Jupiter European Opportunities (JEO) has reigned supreme across Europe for the past decade or so, in both consistency and extent of outperformance...
30 Jan 2019 The Growth Portfolio
Our ten investment trust picks for long-term capital growth...
28 Nov 2018 Every cloud...
The endless grinding negativity of Brexit has driven investors away from Europe in scores, leaving rich pickings for opportunistic buyers...
07 Nov 2018 The Great British Buffett
New research claims to have identified the secret of Warren Buffett's success; we apply similar principles to find the UK's answer to The Sage of Omaha...
17 Oct 2018 Fund Analysis
Jupiter European Opportunities (JEO) has reigned supreme across the Europe for the past decade or so, in both consistency and extent of outperformance...
22 Aug 2018 Reassuringly expensive?
Some investment trust premiums have been stretched to eye-watering levels. Have investors been enjoying themselves in the sun too much? We try to rationalise current levels and suggest alternatives...
09 Jul 2018 Go big or go home
The overwhelming evidence is that fund managers who are willing to back their convictions with punchy bets are the ones that tend to outperform by the highest margin...
30 May 2018 Forza Italia!
Recent weeks have seen Italy's rocky relationship with the EU thrust into the spotlight once again, but we think volatility for European equities may be a buying opportunity...
23 Jan 2018 Fishing in the right pond...
Finding a manager who can consistently outperform is difficult, but our anlaysis shows that it is possible to tilt the odds in your favour...
18 Jan 2018 Fund Analysis
The pre-eminent outperformer in the European fund sector for the past decade or so
26 Jul 2017 En Garde!
Europe is on the front foot, but investors are complacent about risks to the recovery in the longer term...
25 Jul 2017 Fund Analysis
16 Sep 2016 Bargain hunt
Political chaos in Europe provides an opportunity to acquire exposure to some of the world’s largest multinationals at a significant discount...
05 Apr 2016 Fighting spirit
Why investment trusts are the ultimate recovery play...
13 Oct 2015 Fund Analysis
13 Oct 2015 Masters of the universe
Five of the best stockpickers in the entire investment companies sector...
View all

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