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Fund Profile

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This is a non-independent marketing communication commissioned by Columbia Threadneedle Investments. 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

Lead manager Sam Cosh and co-manager Lucy Morris, the team behind European Assets (EAT), remain steadfast in their commitment to investing in Europe’s highest-quality small-cap companies. This is because they are confident that the best-run and highest-quality companies are amongst the safest havens during tumultuous equity markets, with many of EAT’s holdings having demonstrated resilient earnings during past crises. We note that ‘quality’ takes many forms, with EAT investing across the entire range of European small caps. While the team typically have a preference towards the more highly valued sectors with above-market valuations to reflect the premium nature of their companies, they have recently bought several companies in ‘value’ sectors (see Portfolio).

We note that EAT has one quarterly Dividend left to pay based on its previous end-of-year NAV, after which its dividend level (and thus yield) will likely be set to a lower nominal amount, reflecting the fall in European equity market valuations and the NAV of EAT. However, its c. 6% yield is still well above its peers’ level.

EAT currently trades on an 8% Discount, the narrowest in its peer group. EAT’s discount has been resilient despite the market downturn and general sector widening, possibly reflecting the trust’s attractive dividend profile.

EAT’s performance has unfortunately been impacted by the recent market downturn, with the more highly valued stocks (such as those with a quality or growth bias) being hit hardest by the prevailing headwinds. Yet, as we discuss under Performance, the managers believe that even the worst-performing companies in their portfolio still demonstrate the same economic advantages that they did prior to the downturn.

Analyst's View

We think that investing in ‘quality’ companies looks like an attractive strategy given the economic turmoil we are seeing. While EAT’s portfolio has seen valuations fall as interest rates have risen, operational performance has been good, supporting the team’s notion that an investment thesis based on the ‘quality’ factor remains resilient even during times of crisis. We therefore think this is a promising sign for the coming recessionary period we are expecting, and in our view EAT offers a potential ‘buy the dip’ opportunity. Not only has EAT’s discount begun to widen, but the share prices of its underlying companies have also fallen relative to their fundamental strength. Once the risk-off environment dissipates, we believe EAT’s holdings have the potential to positively re-rate, as investors will have breathing room to take stock of the companies which have shown the greatest resilience during this period.

EAT also offers clear advantages for income investors, allowing them to tap into some of Europe’s highest-quality companies without having to compromise on yield. We believe that typical income strategies are unlikely to offer exposure to such high-quality opportunities, given the latter tend to have low yields. Thus EAT not only offers diversification potential, but also potentially higher returns once the team’s quality-growth style comes back into favour (which often occurs at the expense of high-yielding companies).

Bull

  • High-quality portfolio displaying operational resilience in the downturn so far
  • Offers income investors exposure to high-quality European small-cap growth stocks, without having to compromise on yield
  • Discount offers attractive entry point

Bear

  • Bias to high-valuation stocks may cause underperformance during rising interest rate environments
  • Small-cap growth strategies may not be suitable for more cautious investors due to their higher risk profile
  • Paying a dividend from NAV has the potential to draw down the capital of the trust
Continue to Portfolio

Fund History

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
We highlight potential opportunities within the European investment trust space…
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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