Thomas McMahon
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Updated 11 Jul 2024
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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.

New manager of European Assets (EAT), Mine Tezgul, has already started to improve the portfolio she has inherited, aiming to refine the trust’s quality growth strategy to take advantage of a backdrop she finds highly favourable.

Mine took over in May from Sam Cosh, as the integration of the European equities team of Columbia Threadneedle Investments with the team members who joined when it acquired BMO continues. She has managed the open-ended CT European Smaller Companies Fund since 2019, applying a similar stock selection strategy as that used for EAT, and over that time her portfolio has outperformed EAT’s. The chart below shows calendar year performance on a gross basis. Excluding the effect of fees provides a fairer comparison given the charging structure of the vehicles is different, although it does mean the investor would have experienced slightly lower returns. Mine’s portfolio considerably outperformed in 2019 and 2023, while also performing better in 2022, a rough year for growth and for small caps.  Returns were very marginally lower in 2020 and 2021.

In 2023, EAT’s board reviewed performance and some changes to the investment approach were agreed. These were to, first, take advantage of a broader range of opportunities across the universe, meaning a more diverse sector allocation, for example. Secondly, the aim is to improve diversification to manage stock-specific risk, with the number of holdings to rise, and thirdly, to bring Mine’s tried-and-tested valuation discipline into buy and sell decisions. Progress has already been made, with the number of holdings rising from 52 to 63 since last July,  but Mine says there is still work to do.

Recent transactions reflect an emphasis on making sure the valuations of companies are attractive, while maintaining the focus on high-quality growth stocks. Mine has bought Konecranes, which specialises in cranes used in ports. She argues the company, a market leader, is enjoying plenty of opportunity thanks to the reshoring of production across developed markets, while it boasts an attractive free cash flow (FCF) multiple. Another recent addition is Bureau Veritas, a midcap industrial testing and inspection company which is a leader in a consolidating market. The company is benefiting from increased investment in energy transition and energy security, and was also available on an attractive FCF yield. Meanwhile, Mine has also cut companies she thought were too expensive.

The approach and strategy remains broadly the same, with Mine looking for companies with sustainable competitive advantages, enabling the investment of excess cash back into the business or its distribution to shareholders. There is no intention to compromise on quality, rather to ensure the trust does not overpay for that quality. Mine is head of European Small Cap Equities at Columbia Threadneedle, and can draw on the work of small cap colleagues and the broader European equities team. Her approach is collaborative, encouraging healthy debate to stress-test ideas.

She highlights the low valuations of European small caps as a key reason to be excited about investing in this space. European small caps are cheap versus their own history and also versus large cap peers. This reflects a period of underperformance which has affected growth small cap strategies even more than value small cap strategies. However, in Mine’s view earnings have been strong and the outlook is positive; potentially a powerful combination along with the cheap valuations. EAT raised its gearing last year after the review of performance, and gearing remains relatively high versus the trust’s history, above 6%, reflecting the attractions Mine sees in the current market.

When the new manager took over in May, the board also announced a reduction to the management fee. This sees 0.75% paid on the first €300m of funds under management (or gross assets) and 0.55% on anything above this. This is down from 0.75% on the first €400m and 0.6% on the remainder. This means that ongoing charges should be lower on an ongoing basis than they were when the latest published figure of 1.04% was calculated last year.

Mine joined Columbia Threadneedle in 2018 as an equity analyst and since 2019 has been lead portfolio manager of the Columbia Threadneedle European Smaller Companies strategy and co-manager of the Columbia Threadneedle Pan European Small Cap Opportunities strategy. Before this, she spent over ten years as an equity analyst focused on developed market equities, working at Lansdowne Partners, SAC Global Investors and Highbridge Capital Management. Her deputy manager is Philip Dicken, who has replaced Lucy Morris.

In our view, EAT is a strong proposition when considering the attractive quality growth strategy and the high dividend of 6% of NAV that is paid out each year. The new manager seems to have a clear plan for improving returns on the portfolio, and has substantial resources to draw on. Meanwhile the value proposition also looks attractive, considering the cheaper fee structure and the almost 12% discount to NAV on which the shares trade. We will be publishing an updated note on EAT in the near future, please click here to be notified.

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