JPMorgan European Smaller Companies (JESC) aims to provide capital growth from a portfolio of smaller companies in developed Europe, excluding the UK.
The £700m trust (in net asset terms), is managed by Francesco Conte and Edward Greaves who have a unique approach to narrowing down their 1000+ universe of companies, using a combination of qualitative and quantitative methods.
The managers’ analysis helps them recognise and compare three key characteristics for new investment ideas: quality, momentum and value. Companies they select do not need to score perfectly on all three characteristics, but the resulting portfolio is expected to have a positive tilt to all three.
The managers believe that their approach improves risk-adjusted returns, and enables them to outperform through the different stages of cycles (e.g. during growth rallies but also at times when value comes back into favour).
JESC has a strong track record of outperforming the benchmark EMIX Smaller European Companies, and has done so in three out of the past five calendar years. Performance over the past year has been slightly more subdued, largely due to the continued political uncertainty in Europe. This has resulted in the trust spending most of the last year trading at a double-digit discount (12.5% as at 2 January 2020), which offers a potentially attractive entry point for investors looking to access some of the unique smaller companies in developed Europe.
Europe offers exposure to sectors and companies which can be hard to find in the UK, and which would potentially command premium ratings in the US. JESC gives investors access to a well-diversified portfolio of some of the most exciting smaller companies and niche businesses in developed Europe.
In performance terms, the trust has struggled somewhat over the past year or so, causing the discount to widen and presenting a potentially attractive entry point. Over the longer term, however, JESC has a strong long-term track record, generated by its highly experienced and well-embedded management team.
We understand that Francesco and Ed, both experienced managers, intend to stick to the approach that has served them well over the years despite this more challenging recent period. If performance picks up again over time, shareholders might expect the discount to narrow once more, enhancing their returns.
|Unique investment approach, with a portfolio exposed to high-quality, market leading smaller companies||The trust is vulnerable as a result of its euro exposure to a resurgent sterling, which is possible if ‘good Brexit’ materialises
|Strong long-term performance track record
||Political uncertainty is unlikely to subside in the near future
|Current wide discount potentially offers an attractive opportunity