European Opportunities 22 October 2019
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by European Opportunities Trust. 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.
Jupiter European Opportunities (JEO) offers investors exposure to a portfolio of European companies that offer good prospects for capital growth; irrespective of short-term economic trends and the business cycle.
The portfolio is run by Alexander Darwall, one of the most successful fund managers in the investment trust space in recent years. The results of Alexander’s long-term, high conviction view and stock-picking approach can be seen in the performance numbers.
Over a five year period, JEO boasts an alpha of 6.25 and a Sharpe ratio of 1.08. In NAV terms, JEO remains amongst the best performers in the European equities investment trust peer group over three, five and ten years.
JEO has consistently traded at a premium rating relative to the rest of its peer group. Recent uncertainty relating to its continuing management arrangements has, however, resulted in a small discount of 2.5% as at the time of writing.
Alexander Darwall is a world-renowned manager with one of the strongest track records across the investment trust universe. Over his 19 years at the helm of JEO, performance has been exceptional; the NAV total return from launch on 20 November 2000 to 30 September 2019 is 863.5%. This compares with a total return of 198.8% on JEO’s benchmark, the FTSE World Europe ex UK index, and a total return of 179.4% on the FTSE World Europe inc UK index.
Recently JEO has spent a great deal of time in the limelight. In early 2019, JEO featured in the press following Financial Times allegations of accounting irregularities at digital payments company Wirecard, currently the largest holding in the portfolio. As a result the discount widened. Alexander maintains his confidence in Wirecard, highlighting that it has delivered on all expectations during the course of 2019. Although the holding has recovered strongly, Wirecard has continued to lag JEO’s benchmark index returns over the past twelve months. The announcement of Alexander’s intention to leave JEO to form Devon Equity Management in July 2019 also resulted in a widening of the discount. Despite this, there will be no change to the management strategy for JEO at Devon. Additionally, within a separate management entity, Alexander and his team’s primary focus will be on JEO for the foreseeable future. Consequently, we view the current discount as a buying opportunity and think it could prove an attractive entry point into the trust. Alexander’s long-term track record is difficult to ignore, and the trust has only been available at a discount of this level a handful of times since the financial crisis in 2009.
The travails of Woodford Investment Management (WIM) are specific to that manager, in our view. By contrast, Devon has implemented a compelling risk management infrastructure around Alexander, and has further committed not to invest in any unlisted equities or derivative instruments for their clients.
|Exceptional long-term track record||Wirecard coverage draws attention to the fact that this is a highly concentrated portfolio, and the risks that this brings|
|High conviction, stock-picking manager||Short-term performance has lagged the benchmark (over one year)|
|Pragmatic mandate enables manager to look for best 'European' opportunities||Devon Equity Management is a young company|