The managers of JPMorgan European Growth & Income (JEGI) pursue an approach with this philosophy at its centre. Rather than starting from the big picture, taking a macro view of Europe and working down, forming a confident view on what is going to happen and building a portfolio based on that, the team start with the basics and focus on picking the right players to handle multiple situations. The strategy is to apply JPM’s deep resources to uncovering the best opportunities across the vast continent of Europe, focusing on the companies and letting the macro look after itself.
JEGI has delivered a blistering performance, but the trust is in the headlines at the moment for winning the competition to be the rollover option for European Opportunities Trust (EOT). EOT is winding up, with its investors offered the choice of rolling their investment over into JEGI, or into an open-ended fund run by its current manager, Alexander Darwall, or taking their cash back out. There are a number of reasons rolling an investment over into JEGI is an attractive option.
Let’s start with the numbers. JEGI has beaten its benchmark and outperformed the AIC Europe sector average over one, three and five year periods. It’s important to recognise that past performance doesn’t guarantee future success. However, a track record of winning can be evidence of having got some things right when it comes to tactics and strategy.
What we think is at least as important as winning is how victory was achieved. Fund managers often focus on very specific characteristics in their stock picks, be that high growth, undervalued assets or momentum in earnings and sentiment. JPM’s analysts look at all of these factors, looking for companies which appeal when taking everything into account, which should make returns more stable in different environments. The portfolio managers, Alexander Fitzalan Howard, Zenah Shuhaiber, and Timothy Lewis have an abundance of resources to hand when it comes to research. A team of over 80 analysts in the global equity team along with data scientists, trading and analytics specialists, outnumbers England’s support staff, even if we include the WAGS.
The result of their work is a portfolio that is balanced across important characteristics which should have the potential to outperform in different market environments, and far less likely to suffer big losses if the market goes against it. A hint of this can be seen in the calendar year performance, with JEGI outperforming in years like 2022 and 2024, when the market and peer group were flat to negative, but also in 2021 and 2025, in strongly rising markets.
Not placing all your eggs in one basket also means that you are more likely to be invested in forgotten parts of the market when they unexpectedly take off, which is one element behind 2025’s exceptional returns. The managers had a significant exposure to European banks, which rallied as a combination of government spending plans on infrastructure and defence, falling interest rates and easing regulatory restrictions led to exceptional returns. The FTSE World Europe Banks Index was up 86.2% in 2025, in sterling terms, well ahead of the 24.6% gain to Nvidia shareholders. We’re pretty sure that more analysts were picking Nvidia for 2025 than European banks, and we think this highlights the importance of a disciplined process that blocks out the top-down noise and looks for the opportunities in companies that are attractively valued as well as fast growing.
The outperformance potential and the expected steady return cycle are the heart of the case for rolling over into JEGI, but there are other things to consider too. JEGI already has a market cap of £604m, while EOT’s is £420m (both as of 12/06/2026). While some investors may opt for cash or the open-ended option, there is still the potential for JEGI to make a significant step towards £1bn in market cap. The larger the trust, the more liquidity we would hope to see in the shares, lowering trading costs. A larger trust will also bring down the charges, particularly meaningfully for EOT’s shareholders. EOT’s latest ongoing charges figure is 0.98% and JEGI’s 0.66%. JEGI’s tiered management fee structure means that the overall OCF will fall if it takes in new money. For example, if one third of shareholders roll over into JEGI, the trust’s OCF management fee would fall to 0.48% from 0.5%, so all other things being equal the OCF would fall further than the current 0.64%.
Dividends have never been a major part of the investment case for EOT. JEGI, on the other hand, has adopted a best of both worlds dividend policy which means the board pays a dividend of 1% of NAV each quarter, paid from capital if necessary. In other words, the managers don’t look for dividend paying stocks, but for the best total return opportunities, but the board can nonetheless pay a regular, significant dividend. Shareholders can either elect to reinvest the dividend, and roll up all their gains, or take the income out if they wish, while getting exposure to the same portfolio of best total return ideas. Some investors may wish to switch from one strategy to the other over time as their circumstances and requirements change.
The USA’s stock market has stormed away from the pack in recent years, reflecting some strong domestic factors like cheap energy and clusters of innovation, as well as the success of some businesses with global end-markets. But Europe is not just coffee shops and museums. Within JEGI’s portfolio sit companies like French mid-cap engineering business Spie, a leader in energy transition and building efficiency projects. JEGI also owns ASML, the leading producer of lithography machines necessary to produce cutting-edge chips – essential for the AI industry and all sorts of other technological uses. While the US has had its moment in the limelight, European stock markets are deep in innovative, fast-growing companies, many of which are trading on cheap valuations as the other continent steals the headlines. Europe outperformed the S&P 500 in 2025, and so investors who wrote it off missed out.
We think JEGI is well set up to serve investors who want to make a long-term investment in this global powerhouse. Betting against the innovation and creativity of Europe could be unwise, particularly as the trends which have pushed the US to outperform may be petering out. For both existing investors and EOT investors wanting to retain exposure to the region, we think the rollover option brings clear advantages and strengthens the case for the trust. When it comes to investing, like football, Europe offers plenty of world class potential.
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]]>Rockwood Strategic (RKW) has delivered exceptional long-term returns for investors, with a NAV total return of almost 100% over the past five-years. We think this record is a clear demonstration of Richard Staveley’s approach in action, hunting from the bottom-up for idiosyncratic, overlooked and undervalued companies with genuine potential to grow their intrinsic value meaningfully.
The key lies not only in identifying catalysts capable of unlocking that value, but for many of the trust's largest holdings, the influence Richard and team can assert to affect change, shaping board and management decisions directly. A great example of the positive impact this influence can have is via the investment in Galliford Try. Having purchased it in May 2022, at a point when its market capitalisation was below net cash, Richard and the team regularly engaged with management around capital allocation, including their approach to buybacks and dividend policy. Over time the position re-rated strongly, prompting Richard to sell the position in its 2026 financial year, realising a 48% IRR and 2.4× money-multiple.
However, set against this record, the latest full year results running through to March 2026 may look somewhat out of step, with RKW delivering a NAV total return of 7.1%. On closer inspection, however, we would argue that this is not an entirely accurate reflection of the portfolio’s progress over the year. Over its financial year, to February-end, the trust had delivered a NAV total return of 19.4%, but following the conflict in the Middle East, both wider equity markets and the portfolio's valuation were hit hard.
The weakness in March, the last month of its annual reporting period, was a big driver in RKW’s drop to a high single digit return. It masked a lot the portfolio’s progress over the year, including two strong performances from Capital Limited and Vanquis, as well as the realisation of proceeds from the takeover of National World, which achieved a 70.5% IRR. That said, there were several detractors over the period, notably the full write down on Argentex, the FX firm that collapsed after high-risk client trades were caught out by sharp dollar moves.
Since the period end to 16/06/2026, performance has rebounded sharply, with a NAV total return of 18.8%. One of the drivers of performance has been a pick-up in acquisition activity and public-to-private transactions, an area Richard expects to remain a feature of the market for years to come. Following year-end, Van Elle, for example, a geotechnical and ground engineering contractor, received a takeover approach at a 58.5% premium. This is far from a new phenomenon for RKW’s portfolio, but one we think reflects a persistent valuation gap between how the public market prices UK small and micro caps and what private buyers, both overseas corporates and private equity, are willing to pay.
Despite the broader uncertainties surrounding the UK over the past year, Richard has found no shortage of ideas in this buyers’ market, initiating a few new positions with the potential for meaningful upside, including Eagle Eye Solution a leading loyalty and promotions software provider for consumer facing retail and leisure customers. Additionally, he’s utilised fund issuance to invest further in existing holdings at favourable prices, including Flowtech Fluidpower who have built a strong reputation of identifying value accretive bolt-on acquisitions, and have now acquired a larger business based in Europe enhancing scale and reach.
Looking ahead, we believe the broader backdrop for UK small and micro caps remains constructive and developments in artificial intelligence, could also be a net positive for many of the portfolio’s holdings, including its current largest position, RM, supporting its market position within education, notably through its outsourced technology services to schools and its digital platform, Ava. Richard is alert to the risks too, including the weaponisation of AI for cybercrime, but expects most portfolio companies to benefit over time, with several already seeing improved operational productivity.
On a policy level, we think the reduction in the cash ISA allowance from April 2027 has some merit, nudging savers towards investing in the market, a tacit acknowledgement from the government that the UK market remains under-owned by its own population. That said, we share Richard and team’s frustration at the scale of opportunity still being missed. With the UK market having now outperformed the S&P 500 for a second consecutive year, and UK equities remaining at comparatively attractive valuations, broader policy support continues to lag that opportunity. For investors willing to look past short-term noise, we think the Richard's approach holds potential to unlock meaningful, differentiated value in the UK market, and it is precisely this disconnect between fundamentals and flows where managers like Richard continue to demonstrate their stock-picking edge.
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]]>Molten Ventures (GROW) experienced a year of recovery over 2025. A surging share price has been accompanied by an increase in exits in line with or above carrying value, validating the NAV. In the second half of the year, a major revaluation to Revolut was followed by big contract wins to ICEYE. In the new financial year, this has been followed up with a huge uplift to the value of the latter company thanks to a new funding round. However, even after such strong operational performance, the shares still trade on a 29% discount to NAV, which we think makes them look particularly attractive.
The 17 core companies in GROW’s portfolio are achieving revenue growth of 41% with average gross margins of 70%. Seven are already profitable, with 88% of the core fully funded for at least 12 months. The year saw Modo Energy and Manna both elevated to the core following Series B funding rounds. While deal volumes in the venture space are below 2021’s peak, Molten’s portfolio companies raised $3.75bn between them during the year, with $520m extra since raised by ICEYE.
ICEYE is a manufacturer and operator of satellites, and is the owner of the world’s most extensive satellite aperture radar network. It has had significant contract wins from European armed forces, while the commercial uses of its advanced technology are another vector for future growth. ICEYE has achieved profitability on an EBITDA basis and has plans to double its satellite manufacturing and launches by 2028. Aerospace as a theme (9% of portfolio value) is in favour given rising geopolitical tensions, and Isar Aerospace, which launches satellites into space on rockets, is another holding playing this theme. GROW has made an additional investment in the company post period end. Meanwhile, other themes continue to provide winners for the portfolio, most notably fintech (25% of the portfolio) with Revolut, which has announced outstanding results for FY 2025. GROW continues to generate liquidity from the position, while retaining a significant stake.
We think it is clear that activity at the more mature end of the VC market has picked up, and globally interest in late-stage private companies has risen too, with the US likely to see a number of blockbusting IPOs. Total capital raised in the sector in Europe was at its highest in 2025 since 2022, thanks to an increase in deals in the larger end of the market. This top-heavy nature has been reflected in the core of Molten’s portfolio delivering its double digit NAV return for 2025, following on 4% for 2024 and -1% for 2023. The upwards trajectory has continued with ICEYE’s funding round leading to an implied 16% increase in GROW’s NAV alone this year. Molten’s core delivered 26% fair value growth, while the emerging portfolio was written down by 21% and funds were up 17%. The core 17 companies make up 64% of the portfolio, so continued strength here will have the most impact on overall returns.
We think GROW continues to stand out for its exposure to new technology themes at what continues to be a cheap price, i.e. on a wide discount to NAV. With interest in space, defence sovereignty and new tech powered by AI only growing, and with risk appetite returning selectively to these themes, we think there is the potential for a revaluation which would be additive to the potential in the NAV.
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]]>We decided that while the Gozney was £100 more expensive, we preferred the look, so had agreed that we’d buy it as soon as we got back from our holiday in Italy. While there (where we, surprisingly, ate no pizza at all), I noticed that Ooni was having a sale and suddenly the Gozney had become £300 more expensive. We pivoted and bought the Ooni. The bottom line was that getting 30% off the RRP was too good to pass up.
When shopping, I’d argue that most of us would walk past a shop offering wares at full price when the outlet next door was offering a 30% sale on similar products. Yet, when it comes to the stock market, animal spirits often lure us to the overpriced stock markets and those companies that are on sale are shunned.
On the surface, it makes sense. Take our own domestic, mid-cap stock market as an example. In the five years to 11/06/2026, the Vanguard FTSE 250 UCITS ETF (VMIG) has returned a paltry 17.8%, trailing the US, Japan, Germany and global emerging markets.
It’s only just outperformed the Vanguard LifeStrategy 40% Equity fund, which has returned 16.1% despite having both a structural overweight to the UK as well as 60% of its assets in bonds at a time when that particular asset class performed historically poorly. In fact, given the FTSE 250’s five-year price return has been just over 1%, most of VMIG’s returns have come from dividends.
When set against its large-cap counterpart, the Vanguard FTSE 100 ETF (VUKG), performance of the UK mid-cap index is uninspiring, with five-year returns from the blue-chip bourse at c. 72.7% - underperformance of c. 55 percentage points.
This isn’t all that surprising, of course. The FTSE 250 is more geared into the UK economy than the FTSE 100 and, as we mentioned in a recent article, the outlook for the UK economy is cloudy.
The UK will, for instance, be one of the hardest hit from the closure of the Strait of Hormuz, which has shut off c. 20% of global oil supply. Renewed political instability has seen gilt yields rise, while the roaring artificial intelligence trade has stymied returns thanks to our lack of chipmaking capabilities.
Despite all this, there is undoubtedly good news out there that would suggest to us that UK mid-caps should bounce back before too long (how long is anyone’s guess, of course). The economy isn’t in as bad nick as many suspect. The UK’s GDP growth of 0.6% in the first quarter of 2026 was higher than all other G7 nations. Overall growth in 2026 of 0.8% isn’t great, but it remains on par with other major economies such as France, Germany and Japan.
Don’t forget, despite the FTSE 250 being more domestically oriented than the FTSE 100, UK mid-caps still derive more than half of their revenues from abroad, so the UK economy remains only part of the story when it comes to the stock market.
Interestingly, while public market investors seem to have given up on UK plc, private buyers have not. Quite the opposite, in fact. Indeed, even though UK investors have pulled a net c. £74bn out of UK equity funds, according to the Investment Association, UK firms are being snapped up at an alarming rate.
Should they all complete as planned, the total value of UK takeovers so far in 2026 is £39.3bn. That’s 33% more than the total value of deals for the whole of 2025, which clocked in at £29bn, according to the investment platform AJ Bell. Considering we’re not yet even halfway through the year, that’s impressive. There have been 28 announced deals so far, which is a run-rate of more than one per week.
That shows up, too, in deals for all UK companies – not just those listed on the stock market. Between 1986 and 2017, the average number of inward acquisitions (foreign companies acquiring UK companies) was 180 per year; since 2018, that number has risen to 693, according to the Office for National Statistics (ONS). The post-pandemic average is 769.
We think that there are two reasons why foreigners are interested in snapping up UK firms: because we are still the home to world-class, market leading companies, and because they are trading at extremely cheap valuations.
It is the final point that I want to hammer home today. According to Vanguard’s website, on 30/04/2026, the companies held within VMIG (which, don’t forget, includes some investment companies) had an average price-to-earnings (PE) ratio of 10.4x and a price-to-book (PB) ratio of 1.2x. On a PB basis, the FTSE 100 (2.2x PB) was almost twice as expensive as the FTSE 250, while the S&P 500 was almost four and a half times more expensive.
AJ Bell’s analysis of the 22 deals to take UK public stocks private where the terms have been announced publicly, the average premium offered relative to the undisturbed share price is 45%. In simplistic terms, this suggests that there are many UK companies that are, essentially, on a 50% discount.
Normally, when we see a half-price sale, we throw ourselves into the bargain bin and look for the best deals on items we don’t even need. When it comes to the stock market, we seem to be fleeing an area with said 50% off and running flocking to the areas that are most expensive.
Yet, for the reasons discussed, we think this is the worst possible time to be abandoning UK mid (and small) caps. Indeed, it’s possible that we are in the middle of what could be a generational opportunity to build wealth and help turn the tide for UK capital markets.
We would certainly urge shareholders in Schroder UK Mid Cap (SCP), which recently agreed to propose a tender offer to try to draw a line under a campaign by Saba Capital, to stay the course. It makes complete sense for Saba to tender its shares, but, in our view, for ordinary investors tempted to participate, it would be akin to throwing the baby out with the bathwater.
SCP is well placed to capture what we see as an inevitable re-rating of UK mid-caps. Managers Jean Roche and Andy Brough have constructed a portfolio of c. 50 names focused purely on the FTSE 250, which they believe offers a mixture of leaders from niche or growing industries.
So, too, is Mercantile (MRC), where managers Guy Anderson and Anthony Lynch invest predominantly in mid-caps, with historically around three quarters of the portfolio in FTSE 250 companies. Guy and Anthony’s bottom-up process focuses on company fundamentals to identify high-quality businesses, generating positive momentum and that are available at attractive valuations.
One option that scours the whole of the market is Fidelity Special Values (FSV). Managers Alex Wright and Jonathan Winton take an unashamedly contrarian and value-focused approach. Recently, that has seen them take profits from the big tobacco brands, gold miners and defence-related names and recycled into GDP-sensitive stocks such as industrials names, recruitment firms and building materials suppliers, playing into the mid-cap theme somewhat.
Sure, just as the first three pizzas we tried to make with our new Ooni ended up on fire, a calzone and disintegrated in the middle respectively, there are risks to investing in UK mid-caps. Yet, the failure of our pizzas were user error and nothing to do with the oven. Likewise, the cheapness of the FTSE 250 is not the fault of UK plc, but because it’s been shunned by public market investors.
The Ooni was a bargain and as soon as we get used to cooking with it, we’ll be churning out delicious pizzas on a weekly basis. It’s surely only a matter of time, too, before investors see it was a mistake to sell down their UK stocks and start to pivot.
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]]>Ever since he was given the task of turning around their then-waning fortunes in 2019, Mikel Arteta slowly built a title-winning squad. Three consecutive second-placed finishes had brought the moniker of ‘bottlers’, yet they managed to fulfil their potential at the opportune moment. Time will tell if they can become the dominant force they had been during Arsene Wenger’s heyday.
Within the investment world, we’re seemingly currently witnessing the waning of India’s star, yet we believe it won’t be long until the country’s stock market fortunes turn around.
India had for long been one of the darlings of the emerging market universe, with a strong rise in its stock market propelling it to account for c. 21% of the emerging markets index by the middle of 2024.
India’s growth story is predicated on highly favourable demographics, entrepreneurially driven capital allocation, superior corporate profitability, fast digitisation, economic formalisation and manufacturing expansion. In addition, the fact that it is one of the world’s largest democracies helped to give it a clear valuation edge over its developing peers.
What we’ve seen recently is a slowing in India’s growth momentum. Growth in corporate profitability over recent quarters has been between 7% to 10%, while real economic growth is forecasted to be within the 6.5% to 7.5% range.
Consumer price inflation for the ongoing fiscal year is expected to rise to 5.1%, still within the central bank’s target range of 2% to 6%. But it is the Indian rupee, which has fallen c. 9% against sterling over the last one year, that has resulted in negative returns for investors.
Higher oil prices, increased hedging demand from importers and higher outbound investment by Indian firms – to strengthen their supply chain – has weighed on the currency in the near-term. However, this has made India’s exporters more competitive versus other countries and counter tariffs imposed by the US.
At a time when the shiny new artificial intelligence enablers such as chipmakers, be that in the US, Taiwan or Korea have come to the fore with strong revenue growth trends, India has, inevitably, been left behind. India’s weighting in the emerging markets index has almost halved to c. 12% and has been overtaken by China, Taiwan and South Korea.
Yet, we see the current pullback in India as being a reset in valuations and nothing else. In fact, we believe India continues to be on the path to realise its true economic potential. The International Monetary Fund is also forecasting India’s GDP growth of 6.5% in each year between 2026 and 2031 – much higher than growth of c. 4% for emerging and developing nations and sub-2% growth from advanced economies.
Overall, between full-year 1993 and full-year 2026, nominal GDP growth has compounded at an annual rate of 12.2%. Earnings per share growth from the BSE Sensex index has matched that, at 12.1%. Between 2005 and 2025, return on equity of Indian firms averaged 16.9%, well above the 12.1% from Asia Pacific ex Japan, the 13.1% from emerging markets and the 12.2% from global equities.
All of this from a now much cheaper valuation base: the forward price-to-earnings ratio of the Sensex has fallen to c. 18.1x, not far off the average since 1993 of 17.7x and lower than the average since 2014 of 20.7x.
In addition, those well-known structural drivers haven’t disappeared; if anything, they’ve become more embedded. They’ve also broadened out. The prominence of Taiwan and Korea’s AI behemoths have overshadowed India’s AI advances, but the advances India has made here are real.
Indian companies have been building meaningful manufacturing capabilities in areas key to several of the most relevant investment themes shaping global markets today, including AI infrastructure, data centres, industrial electrification, defence manufacturing and energy security.
Sure, India’s story as a consumption market is important, and its young workforce and population marks it out from other economies both developed and emerging, yet it is also now becoming an increasingly important manufacturing and engineering hub across multiple layers of the industrial and data centre ecosystem. That’s an important distinction in a world where hyperscale computing, AI workloads and digital infrastructure investments are accelerating.
We’ve observed these themes within the portfolio of Ashoka India Equity (AIE). Indeed, companies with exposure to these enduring, structural themes have been some of the top-performing investments within the trust.
TD Power Systems designs and makes AC generators for steam turbines, gas turbines, hydro turbines, diesel engines, and gas engines, which it supplies to some of the leading original equipment manufacturers (OEMs) worldwide. It should benefit from rising demand for dependable power solutions, particularly in data centres and other mission critical applications where gas engines and turbines are increasingly being deployed.
Azad Engineering and MTAR Technologies both make highly engineered, precision-machined components or systems for different industries.
In Azad’s case, its components are often mission- or life-critical, meaning they must meet stringent quality requirements, providing a significant barrier to entry. Azad cements its position by having a significant cost advantage compared to peers. Again, its OEM customers are big hitters: the likes of General Electric, Honeywell International, and Mitsubishi Heavy Industries.
MTAR’s systems cater to sectors such as clean energy, civil nuclear power, space, aerospace, and defence. The company supplies crucial products to Bloom Energy, a leading global player in solid oxide fuel-cell technology, which is increasingly relevant for data centres where reliable, efficient, and cleaner power supply is becoming a key requirement.
This trio are relatively small fish, coming in at between £1bn and £1.8bn in market capitalisation, showing the depth and breadth of AIE’s well-resourced and on-the-ground team.
We think that AIE remains well positioned to capitalise on these under-the-radar opportunities, differentiating the trust from other Indian trusts, as well as broader emerging markets, which have become skewed to a narrow handful of chipmakers.
Crucially, the Indian market is still relatively under-researched, especially in the small and mid-cap space. This is the area AIE tends to favour and gives management the opportunity to add significant alpha over and above both the benchmark and peers.
AIE is well-aligned with shareholders, with management remunerated not by an annual management fee, but by a performance fee only, incentivising alpha generation over asset gathering. While the fee policy was tweaked recently to enable the managers to take the performance fee partly as cash and partly as shares, the managers elected to take all of the fees as shares, giving them real skin in the game, too.
Sure, there are risks, namely a sharp reversal in global markets and a sustained spike in oil prices, but those same risks are true of all other regions, too. We think that all of the factors we’ve mentioned place India as one of the most promising economies over the medium term and make for a highly compelling investment proposition.
Within AIE, too, the current turmoil has opened up a rare opportunity. AIE’s strengths have meant that the trust has traded on a premium for much of its existence. At the time of writing on 05/06/2026, it’s fallen to a c. 4% discount.
Like Arsenal before it, India may need to take one or two steps backwards in order to build renewed momentum to recapture its old place as the most exciting story within not only emerging markets, but globally. If that is indeed the case, the buying opportunity that’s opened up in AIE shares may not last for long.
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]]>Let’s deal with the usual scepticism first: economic growth has been anaemic, tariffs remain a headwind and government debt continues to rise. Throw in persistent geopolitical tensions and it doesn’t entirely look like a region on the cusp of a dramatic upswing.
That may be the man, but the dog has been far livelier: in 2025, five of the world’s ten best-performing stock markets were European, with the Spanish IBEX 35 delivering a 60%-plus return.
This disconnect should not be surprising given that European equities are not a pure play on the regional economy. Around 60% of MSCI Europe revenues are earned overseas, twice that of the US and emerging markets. As a result, performance is shaped as much by the macro backdrop in the US and Asia as conditions closer to home.
European companies may not command the headline-grabbing glitz of the Magnificent Seven, but the region is home to a roster of world-class businesses trading at more attractive valuations than their American peers. For investors willing to follow the dog, Europe could offer a compelling opportunity.
A decade of entrenched US exceptionalism has opened a clear valuation gap, with US-listed companies often commanding higher multiples than their European-listed peers. Yet Europe also boasts global leaders at the centre of powerful structural trends.
AI has taken the world by storm and ASML is another European success story. As the sole global supplier of extreme ultraviolet lithography machines required to manufacture the most advanced semiconductor chips, it sits at the heart of soaring demand for data centres and high-performance computing.
Its blue-chip customers include NVIDIA, TSMC, Intel and Apple, and it recently agreed a multi-million-dollar deal with Samsung Electronics to expand chipmaking capacity in Korea. Yet ASML still trades at lower multiples than several US semiconductor equipment peers despite its market-leading position.
SAP is also trading at a discount to many US software peers, despite its global leadership in enterprise software after a multi-year transition to cloud-based subscription revenue. High recurring revenues, improving margins and deeply embedded products provide a long growth runway, particularly as AI adoption accelerates.
Europe’s leadership also extends beyond technology into financial market infrastructure. As one of the leading exchange operators, Deutsche Börse sits at the heart of Europe’s capital markets ecosystem.
The company provides exposure to powerful structural trends including rising market activity, increasing demand for financial data and analytics and growing participation in capital markets. Mobilisation of Europe’s substantial household savings into equities could also provide a further tailwind.
Despite its high-quality characteristics, strong cash generation and long-term growth prospects, Deutsche Börse continues to trade at an attractive valuation relative to its US-listed financial infrastructure peers.
Together, these businesses provide exposure to powerful global megatrends across AI infrastructure, digital transformation and capital markets, while offering a margin of safety relative to the valuations of their US counterparts.
Global markets have offered rich pickings for European companies, but there’s a notable improvement in the domestic picture too.
After a decade of austerity, Germany’s easing of its fiscal debt brake marks a clear shift in direction, opening the way for increased investment in defence, transport and energy infrastructure. At the same time, defence budgets are rising across the region as NATO members ramp up spending and co-operation.
Energy security provides a further catalyst, with geopolitical uncertainty pushing European policy-makers to reduce reliance on external suppliers and accelerate investment in domestic renewables and grid capacity.
Moving from the public to private sector, European households sit on an unusually high level of savings, often in low-yielding deposits. The Draghi report has built political momentum to reallocate this capital into productive investment, which could have a substantial impact on equity markets.
These domestic catalysts support an improving earnings outlook for European equities, with growth forecast to move from neutral in 2025 to high single numbers in 2026.
While passive strategies own the market, warts and all, active funds such as Fidelity European (FEV) focus on finding the right companies and having the conviction to keep holding them. Managers Marcel Stötzel and Sam Morse draw on more than 50 years of combined experience, supported by around 140 global equity analysts, including a dedicated European team.
Their approach is deliberately selective, holding 40-50, predominantly large-cap companies with strong cash generation, disciplined capital allocation and clear structural growth drivers. Dividend growth is central to the strategy, driven by underlying earnings rather than headline yield, meaning that quality and compounding take priority over short-term income.
This discipline is reflected in the longevity of many holdings. FEV has owned SAP for over 25 years and ASML for over a decade, allowing the portfolio to capture the full compounding effect of durable business models.
Over the past 30 years, this long-term approach has delivered an annualised return of 12%, comfortably above the MSCI Europe Index at 8%. Or, to put it another way, £1,000 invested in FEV 30 years ago would have grown to almost £30,000, compared to £19,000 for the S&P 500.
The managers have positioned the portfolio to capitalise on the most compelling structural themes. TotalEnergies, a holding since the 1990s, illustrates how disciplined capital allocation has supported a pragmatic approach to the energy transition by increasing oil and gas production to fund its pivot into clean energy. Despite comparable share price performance and forecast earnings growth to ExxonMobil, TotalEnergies trades at roughly half the valuation of its US peer.
In digitalisation and AI, Legrand provides a differentiated “picks and shovels” angle to SAP and ASML. Data centres now account for around a quarter of the French electrical specialist’s revenue, supported by targeted acquisitions and expansion into the Americas.
Alongside these long-term themes, the managers also take an active approach to capture shorter-term opportunities. Financials are one such example: European banks now have stronger capital bases, more resilient earnings and attractive valuations. FEV has recently added BNP Paribas and continues to hold Deutsche Börse, which could benefit if household savings are channelled into equity markets.
Airlines also offer a more contrarian opportunity: while higher fuel costs are a clear headwind, this can force weaker operators to retrench and enable stronger carriers to improve their pricing power and market share. As a result, FEV holds a position in leading European carrier Ryanair, thanks to the success of its low-cost model and healthy balance sheet.
For much of the last decade, a sluggish economy has weighed on investor sentiment towards Europe, despite its cohort of world-class companies. With valuations still materially below the US and domestic stimulus beginning to pay dividends, the man and the dog may finally be running together.
Unless specified otherwise, data as at 09/06/2026, and total share price returns in GBP.
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]]>We believe the outcome of this strategic review offers Pacific Assets’ (PAC) shareholders continuity in several key aspects. Robin Parbrook and King Fuei Lee’s approach to managing Schroder Asian Total Return (ATR) has similar characteristics such as a benchmark agnostic approach and strong consideration of risk metrics which should feel familiar to shareholders of PAC. There are of course differences in the approaches and the composition of the two portfolios, although it should be noted that ATR has delivered excellent long-term performance, with a NAV TR of c. 60% over the past five years to 10/06/2026, considerably ahead of PAC’s c. 28% whilst looking to balance both risk and reward.
For those looking at alternatives, the cash exit provides an opportunity to release some of their investment at close to NAV, offering an element of flexibility, whilst the rollover will ensure shareholders with tax considerations have an efficient route to continue their investment, should the combination be approved by both sets of shareholders. We believe ATR’s narrower discount is also encouraging, with the trust’s shares having traded considerably closer to NAV than PAC over much of the past five years, usually trading the closest to par in the peer group. ATR’s successful performance track record is likely one factor behind this, as is the fact Robin and King Fuei’s open-ended equivalent is soft closed, meaning the trust is the best way of accessing the strategy. In addition, the board has been active with share buybacks with the goal of ensuring the discount is no wider than 5% in normal market conditions. This approach is expected to continue post combination.
The increased scale brought about by the combination will create economies of scale too, which are being passed on to shareholders through a change in the remuneration structure of the manager. The introduction of a tiered management fee is pragmatic, in our view, with the change to using the lower of NAV and market cap as a basis a positive one for shareholders. Furthermore, the adjustments to the performance fee offer fairness to incoming shareholders and the contribution to costs from Schroders are positive, helping mitigate the financial implications of the transaction.
Ultimately though, we believe it is the alignment of the two investment philosophies that mean this proposed transaction makes the most sense. Robin and King Fuei’s approach involves focussing on stock specific issues, looking to identify the best companies to invest in within Asia, and not being concerned about arbitrary weightings of indices. In addition, the incorporation of top-down factors as part of an integrated approach should help offset some of the nearer term challenges faced by markets, due to the managers’ ability to use hedging strategies which can help mitigate downside risks. This approach very much aligns with the risk-focussed approach of the former Stewart Investor team. Considering the strong run of the region over the past couple of years we believe investing through a strategy that can capture these growth trends, whilst mitigating potential downsides is a compelling option, whilst the details of the deal itself treat investors fairly along the journey.
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]]>We think Sequoia Economic Infrastructure Income's (SEQI) results are encouraging across the board and highlight the attractiveness of private lending to mid-market infrastructure projects and businesses. The valuation of the loan book has been stable despite macro uncertainty and despite the issues in the US private credit market. SEQI lends only against infrastructure, inherently a defensive and non-cyclical sector backed by real assets, in sharp contrast to the asset-light software businesses which have run into competition from AI. Additionally, SEQI’s model does not involve gearing, and it is able to generate a high income without it. Some important quality metrics have also been improving, with cash cover up and the security profile of the book overall moving higher. Finally, we think it is notable that the managers continue to be able to invest significant amounts of new money at their target rate of return.
With loans being made on a three to five-year basis, there is a constant flow of money back into the portfolio allowing the managers to be flexible with their positioning. The portfolio includes exposures to new economy industries and themes such as artificial intelligence and energy security. In the light of the rapid expansion of data centres for AI, the managers have been focusing on less competitive opportunities in the chain where pricing is more attractive and covenants better. This includes power infrastructure, such as the €75m commitment to Project Grange, an Irish standby power generation project which generates a yield-to-maturity of 9%. As for energy security, in the 2026 financial year, SEQI invested in two interconnector transactions linking power grids across jurisdictions, which support grid resilience and cross-border energy balancing, as well as adding solar generation exposure in Europe.
We note the proposed change to the investment policy which, subject to shareholder agreement, could see the portfolio invest more outside Europe, the US and the UK, most significantly into Asia, which would be capped at 30% under the current planned proposals. The managers argue that since SEQI launched in 2015, the opportunity set has expanded rapidly, with heavy investment in infrastructure in different jurisdictions with strong regulatory frameworks. The policy would limit investment to OECD countries, or those with investment credit grade ratings. We think this could be highly attractive from a diversification perspective, helping bring exposure to fast-growing, highly-developed Asian economies.
As well as its attractions from an income perspective, we think SEQI could serve as a useful portfolio diversifier to investors who own investment companies invested in infrastructure equity. The low NAV volatility and more secured cashflows differentiate it from an equity investment, while its investments sit higher up the capital structure and so have more security. At the current moment, SEQI’s double digit discount is an additional attraction for new shareholders, in our view. Narrowing the discount remains a key objective of the board, which has had some success on that front, notwithstanding volatility due to the war in the Middle East. Given the defensiveness of the portfolio, lack of structural gearing and high yield, we view a double digit discount as particularly attractive.
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]]>The timing is poetic, with the SpaceX IPO closing imminently. ICEYE is a European (Finnish) satellite manufacturer and operator, owning the world’s largest synthetic aperture radar constellation. This technology is a step forward in image quality for satellite surveillance, allowing persistent monitoring of precise locations on earth in any weather, through clouds and vegetation. The company has signed major deals with European armed forces this year while the potential use in insurance and other commercial purposes is another appealing vector. It could perhaps be considered a European Starlink. The valuation in the current round, led by General Atlantic, is c. $12bn.
Meanwhile, Elon Musk’s more complicated beast, an amalgam of a profitable satellite company, a US federal government contract-dependent rocket company, and a cash-hungry meme generator, lurches towards the IPO finishing line with a potential valuation of $1.75trn. SpaceX has taken advantage of new rules to offer UK retail investors access to its IPO, due no doubt to its founder’s deep, personal commitment to making the whole world richer.
Over 2025, Starlink was profitable in GAAP terms ($4.4bn in 2025), while the rocket launch business made a modest loss. Grok, or ‘SpaceAI’, lost $6.4bn in 2025, and a further $2.5bn in Q1 2026. ICEYE reported EBITDA profitability last year, with a ramp-up of satellite manufacturing and launching (both set to double by 2028) having the potential to see it follow a similar path as Starlink, although it has not yet published numbers on an accounting basis.
Investors will have to assess for themselves the attractiveness of SpaceX and its plans to build data centres in a vacuum and keep them cool with as yet unknown means. Could they be the self-driving cars of Musk’s current enterprise? In our view, there is a stark discrepancy here between a richly valued US business with a long way between its future plans and current reality, and a European business on a simpler trajectory to profitability and available on a discount via the shares of Molten Ventures.
Intriguingly, the day after the news of ICEYE’s funding round, GROW announced a follow-on investment of €30m into Isar Aerospace, a European company which approximates the rocket launch business of SpaceX. Isar is at a relatively early stage in its journey, but the Molten team argue it is, “well-positioned to become a defining player in Europe's new space infrastructure”. We think GROW’s discount is particularly attractive in the light of the diverse portfolio of high-tech businesses it owns, with momentum building behind some of the themes, such as space tech.
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]]>Inspired by the Habsburgs’ lower-risk approach to territorial expansion, we asked whether a similarly lower-risk approach to equity markets could deliver outperformance. To explore this, we identified the investment trusts with the lowest beta in each major equity-focussed AIC sector and analysed their performance. We then constructed a portfolio with these investment trusts and benchmarked it against the MSCI ACWI.
]]>The role of Doctor Doom is set to be played by Robert Downey Jr., but in the meantime, we’re being treated to a who plethora of Doctor Dooms when it comes to the UK economy and, like the seeming invincibility of Victor von Doom, their arguments seem compelling.
The closure of the Strait of Hormuz has shut off around 20% of oil supply, seeing oil and gas prices surge once more. This has, ultimately, put pressure on economies worldwide. The UK has felt that, thanks to a reliance on imported oil and gas and because our electricity prices are generally set by the global gas price. Indeed, the International Monetary Fund (IMF) in April said the conflict would hit the UK harder than other advanced economies, revising growth forecasts for 2026 as a whole down to 0.8% from 1.3% previously.
We’ve also seen renewed political instability, something many may have hoped had dissipated (at least temporarily) after the last general election. The potential for a shift further left has spooked markets and pushed UK borrowing costs to their highest in decades. The yield on the 30-year gilt remains over 5.5%, while the 10-year gilt is around 4.8%.
This confluence of events has served to dampen investor sentiment towards our fair isle, at the same time an apparent ceasefire with Iran has reignited animal spirits across the Atlantic and lit a fire under the artificial intelligence trade, pushing US bourses back to record highs, as well as buoying emerging markets along the way.
Despite all of this, things aren’t as bad as the doomsayers would have you believe, in our view. Stunningly, UK GDP growth in the first quarter of 2026, at 0.6%, led all other G7 nations, including the US, which clocked in at 0.5%. Most recently, the IMF has noted the resiliency with which the UK has navigated recent months, revising up its 2026 growth forecast to 1%.
So, while headlines are doom and gloom, the UK itself and the companies that make up its listed stock markets are quietly progressing. Perhaps the key factor here, though, lies in the cheapness of UK plc. While no longer the rock-bottom valuations we saw a few years ago, as a rising tide has lifted all boats, the UK remains attractively valued versus both its own history as well as other markets, particularly those that have undergone bigger re-ratings.
The forward price-to-earnings ratio for 2027 of the FTSE 100 and Deutsche Numis Smaller Companies ex ITs plus AIM Indices on 30/04/2026 were just 12.3x and 12x respectively, well below most other markets, as you can see from the chart.
The outlook is undoubtedly tough, but we would argue that low valuations are largely pricing in the negative newsflow. This provides a margin of safety, but also means any positive newsflow, no matter how small, that makes headlines could have a big impact to the upside.
In addition, a divergence between the perceived winners and losers has opened an opportunity for stockpickers to distinguish between the two. Many domestically exposed and cyclical sectors are trading at depressed levels, offering select investment opportunities, while traditionally defensive areas have rerated significantly and may now offer limited upside.
The relative de-rating of UK small and mid-caps, which tend to be more attuned to the UK economy, has led to this particular segment now somewhat counterintuitively having a c. 400 basis points yield premium over its large-cap counterpart. The MSCI United Kingdom Index’s yield on 30/04/2026 was c. 3.1%, versus a c. 3.5% yield from the MSCI UK Small Cap Index.
Indeed, a focus on large-caps has seen the SMID-cap arena continue to be overlooked. This shows up in the poor relative performance of UK SMIDs versus blue-chips. In our view, this offers an attractive hunting ground for contrarian investors.
On that note, Fidelity Special Values (FSV) stands out as a good option here, in our view, given manager Alex Wright’s contrarian, value-focused investment style, as well as his ability to fish right across the market-cap spectrum.
FSV’s performance tends to be driven by bottom-up stock selection, rather than any top-down events. This provides resilience when positive developments are being overlooked and enables FSV to outperform across different market cycles and environments.
Additionally, Alex and co-manager Jonathan Winton have at their disposal the depth of Fidelity’s research capabilities, which alongside the nimbleness of the investment trust wrapper, allow them to position the portfolio to take advantage of where the out-of-favour opportunities are today.
Profits have been taken from high-performing stocks where the contrarian thesis has started to play out, such as the big tobacco brands, gold miners and defence-related names. Cash has been deployed to selectively increase exposure to GDP-sensitive stocks, one of their four ‘supersectors’ used to analyse portfolio exposure. This includes industrials names, recruitment firms and building materials suppliers, where stock-specific opportunities have combined with depressed industry volumes, offering multiple catalysts to support a turnaround.
Overall, we think that FSV’s contrarian style is coming into its own in a world that is becoming harder to navigate. The c. 10% discount the trust was trading on 18 months ago has dissipated, but that’s no reason to think twice, in our view. In fact, we think the premium rating is justified by performance: FSV is top of the charts in the UK All Companies sector in both share price and net asset value total return terms over one-, three-, five- and 10-year timeframes (to 29/05/2026).
FSV’s one-year share price total return to 28/05/2026 of 23.75%, meanwhile, has beaten the 22.5% return from the FTSE All Share, albeit the NAV’s 18.6% is slightly down on the benchmark. Still, the longer-term performance is better, with NAV gains in the five years to 07/06/2026 at c. 65.9% versus the benchmark’s c. 64.7%.
As in most superhero and villain films, the highly intelligent Doctor Doom generally proves a worthy adversary for the likes of Reed Richards and the rest of the Fantastic Four, yet he has his weaknesses, primarily his own arrogance, which tends to be part of his own downfall.
It’s possible that the UK economy and stock market doomsayers may meet their own downfall should conditions turn against them. If that’s the case, we think FSV provides patient investors willing to take the contrarian view with good-quality management, deep resources and an attractive portfolio, alongside strong performance and an attractive c. 2.2% yield, putting it in the perfect position to take advantage.
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]]>When we got back to the UK over the bank holiday weekend, we were treated to the news that Ferrari had unveiled its first ever electric car, alongside a video of none other than Pope Leo behind the wheel.
Despite the widespread ridicule that’s come from most quarters, the Ferrari Luce is sold out through 2027. I’ll let you decide whether that shows the enduring appeal of the Ferrari brand, or that there are still plenty of people who have more money than sense (apologies if you’re one of those people).
Getting back to markets, one could argue that a similar dynamic is playing out today. Despite the fact that the Strait of Hormuz remains very much closed, geopolitical risk is high, interest rate cuts seem to have been put on the backburner and valuations remain elevated, it’s possible we’re either in or getting close to the euphoric stage of the investment cycle.
We will soon witness some of the largest IPOs in history, from unprofitable companies such as SpaceX and Anthropic, while chip stocks are once again surging. The VanEck Semiconductor UCITS ETF (SMGB), for instance, is up c. 85% over six months and c. 175% over 12 months. The VanEck Space Innovators UCITS ETF (JEDG), meanwhile, is up c. 90% and c. 200% respectively over the same timeframes.
Even broad markets are rallying hard, witness the Nasdaq Composite’s c. 30% gain since the end of March as a good example. You tell me if we’re seeing echoes of the dotcom bubble.
These were the most (and least) popular shares with UK retail investors on three of the largest investment platforms last month:
Considering what we spoke about in the intro, it will come as no surprise that chip stocks were in the ascendency (more on that, and tech more broadly) later.
NVIDIA (NVDA) topped the leaderboard for the first month since November, though many new shareholders will undoubtedly be miffed that despite reporting another record quarter and beating sales and profits expectations, shares fell the following day.
Jensen Huang’s company saw first-quarter revenue soar 85% year-on-year and net income more than triple, yet shares dropped 1.6% as high expectations have become somewhat of a slam dunk for shareholders.
Things have run so far that a 58% share price rise from NVIDIA over the past year looks rather pedestrian when set against some of its chip-making peers, particularly Micron Technology (MU), which became the latest member of the 13-strong $1trn club last week.
In fact, MU’s run has been so eye-catching that it has become a tenbagger (where shares have risen more than ten-fold) in the space of just 10 months. MU has seen strong demand for its dynamic random access memory products, which are used in data centres, AI servers, laptops and mobile devices. Sellside analysts remain bullish, with UBS having recently upgraded its price target for the stock to $1,625, c. 53% higher than today’s price.
Interestingly, one chip stock that hasn’t been feeling the love from UK retail investors has been Advanced Micro Devices (AMD), which features in our most-sold list, but not in the most-bought version.
Buoyed by demand for its central processing units, AMD’s shares are up a stunning c. 350% in the past year, suggesting while MU continues to lure in investors, profits are being taken from AMD.
Microsoft (MSFT) also remains seemingly out-of-favour. MSFT was initially caught up in the SaaSpocalypse after Anthropic launched Claude Legal, as investors bet that traditional software stocks would struggle in the new AI era. Meanwhile, MSFT’s heavy capital expenditure on AI infrastructure is also coming into question, as its previous investment thesis, predicated on a capital-light business model, has changed 360 degrees.
Sure, some have taken the contrarian view that the baby has been thrown out with the bathwater, bidding MSFT’s shares up c. 20% since late March, but the stock price remains c. 20% lower than where they were in late October.
One real UK success story has been Filtronic (FTC), a Durham-based manufacturer of high-frequency amplifier modules that are used by SpaceX for its Starlink satellites. SpaceX owns 15% of FTC, an investment that has been supremely successful since, in the 12 months to 15/05/2026 shares were up c. 600%.
Momentum in the space trade seems to have fizzled out slightly in the past few weeks, however, with FTC’s shares down c. 33%. Still, FTC remains buoyed by enthusiasm for the space economy, which is expected to grow from c. $630bn in value today to as much as $1.8trn by 2035, according to the World Economic Forum, growing at almost twice the rate of global GDP.
Investment trust investors can get access to FTC, alongside a concentrated portfolio of other UK micro-cap stocks, through Rockwood Strategic (RKW), where manager Richard Staveley is of the view that FTC may have further to run, despite having halved his position in the company last year.
Moving onto investment trusts, and the top of the list remained broadly unchanged, but we did see some new entries further down the list:
Our list of popular investment trusts arguably shows investors’ laser focus on technology and chips better than anything else could. Indeed, the top four in May were all focused on this one theme.
Scottish Mortgage (SMT) has topped the list for the past 16 months now, and is riding high off the back of its private investments in the likes of SpaceX and Anthropic, both of which are getting ready to float on the stock market later this year.
SMT admitted that SpaceX had been the biggest contributor to returns during its recent full-year results, with Elon Musk’s company now accounting for almost 18% of the portfolio. Anthropic, meanwhile, accounts for another 2.6%.
Outwith SMT, Polar Capital Technology (PCT) and Allianz Technology Trust (ATT), the two tech-focused behemoths of the investment trust universe, also gained in popularity. Both have been on the right side of the SaaSpocalypse, reducing exposure to traditional software names ahead of time, while they are also positioned well to capture the broadening out of the AI trade and are, arguably, reaping the benefits.
We’ll also give a good mention to Seraphim Space (SSIT), too, which is another investment benefiting from the positivity over SpaceX’s IPO (even though SSIT doesn’t invest in the company) and the space economy boom more broadly.
SSIT’s share price has climbed c. 164% over the past 12 months, even including a recent c. 30% fall. All told, SSIT has gone from trading on a discount as wide as 71% three years ago to a c. 30% premium at the time of writing (04/06/2026). Just nine days ago, it was on a 92% premium.
Performance has been boosted by impressive progress made by Finnish microsatellite firm ICEYE, which accounts for almost half of the trust’s investments, alongside the space analytics firm HawkEye 360 (HAWK), which floated on the New York Stock Exchange in early May.
Another region that has been buoyed by the semiconductor euphoria is Asia and, consequently, emerging markets more generally. TSMC, Samsung Electronics and SK Hynix, all three of which also recently joined the $1trn club, have provided chip-related momentum, driving strong performance from the asset class.
In total, the trio accounts for c. one-third of the portfolio of Templeton Emerging Markets (TEM), propelling the trust to deliver c. 90% share price gains over the past 12 months, extending the long-term record of impressive performance from one of the investment trust universe’s stalwarts.
An interesting new entrant to our list is Baillie Gifford Shin Nippon (BGS), which, as all of Baillie Gifford’s funds and trusts do, takes an unashamedly growth style focus to investing in Japanese smaller companies.
This growth slant has hitherto been a headwind in a market that has been powered by value stocks, as Japanese authorities look to encourage companies to realise hidden value in their businesses.
BGS’s five-year returns are little to write home about, but the trust has started to outperform its activist peers in the past few months, no doubt helped by growth mania returning to markets.
Amid all the talk of a bubble and euphoria happening in the US, it’s perhaps hard to feel that when we’re sitting across a large body of water in a country that, despite huge gains for global stock markets, allocated a net £877m to bond funds, the strongest inflows since June 2023 and the six best month for the asset class in the 12 years the funds network Calastone has been keeping data.
In the long term, that has the potential to be a good move, but in the short-term it’s likely to hurt. It’s possible that animal spirits could run for a while yet, particularly with the prospect of jumping on yet another seeming Elon Musk gravy train. Let’s hope the FOMO blues don’t kick in.
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]]>Newly promoted lead manager Abbas Barkhordar notes two defining features of these results: the continued strength of the technology sector, and the disruption caused by the war in Iran. Whilst the latter issue rumbles on, and the impact has been acute for the region, it is one issue that could resolve quickly. On a longer-term view though, the region’s tech sector will likely continue to be a major driver of success, with many of the world-leading firms critical to the tech supply chain being based in the region. With this background in mind, Schroder AsiaPacific’s (SDP) overweight to the sector continues to appeal, in our view, as a way of accessing the structural growth trend through an actively managed portfolio.
Further supporting this view are the pragmatic changes made to the portfolio in the period. Abbas has added a range of holdings, from Korea to India, looking to capitalise on the wide opportunity set of high-quality companies trading at attractive valuations. More impressively, in our view, is the disposals made as a result of changing backdrops. Buying stocks is a relatively straightforward process, but selling takes considerably more conviction, and Abbas’ exits, such as Indian firms ICICI Bank and Infosys on degrading macro conditions and AI disruption risk respectively, demonstrate this discipline.
Adding to the trust’s appeal is the current discount. Whilst this narrowed slightly in the period, it has since widened again, and was c. 10% at the close before the publication of these results (01/06/2026). We believe this could offer a compelling entry point for long-term investors as a way of accessing the growing economic might of the Asian region, especially the technology overweight, whilst also benefitting from the active management undertaken by Abbas.
Finally, we believe Abbas’ promotion to lead manager is a natural step up and a demonstration of the strength-in-depth of Schroders. He was originally brought on following the retirement of veteran manager Matthew Dobbs and the transition has been about as seamless as one could expect, with a consistency of approach continuing the solid long-term returns. We understand changes behind the scenes will be limited, with Abbas continuing to work closely with former co-manager Richard Sennitt and the well-resourced Schroders team, which ensures further consistency of approach.
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]]>So, how do we look at portfolio construction in the context of a three-course meal? In my view, the starter is sitting down and setting your investment objectives. How much do you have to invest, over how long a time frame, and what outcome do you want from your investments?
Then, the free lunch’s main course: diversification. This is where you ensure you have a wide enough portfolio to hit the best reward for your chosen level of risk, but don’t over-diversify.
Then, we come to the crowning glory of any meal, dessert. For me, the dessert is the ongoing maintenance of a portfolio, most importantly that is re-balancing. It’s something that many newbies eschew, because they’ve been brought up to buy and hold, essentially forever.
That strategy has worked for the past 15 years or so, but it could be time to change tack. Getting into the practice of regularly re-balancing your portfolio has, in my view, not been this important since the turn of the millennium.
Re-balancing is essentially the act of taking profits from your winners and topping up your losers. Say your target weighting was 60% in global equities, 30% in bonds and 10% in property. If the global equity portion became 75% thanks to strong equity market returns, while bonds fell to 20% and property to 5%, a re-balancing would take the profits made from equities to bring them back to 60% and split the profits between bonds and property.
The current, secular bull market in equities has led many to believe that one should let the market determine your portfolio weightings: if equity markets climb, then so be it. However, that could completely alter the risk of your portfolio. This is especially true of periods where stock valuations are at historically high levels, such as in 1999 and 2000, as well as, arguably, now.
Admittedly, I was only 12 years old when the dotcom bubble burst, so my examples of that time (as well as the inspiration for this article) come from the late Yale University CIO David Swensen’s 2005 book Conventional Success.
If you’d managed to invest £10,000 in, say, Allianz Technology Trust (ATT) on 01/01/1998 and made no further purchases or sales, today you’d have c. £640,000. That’s an annualised return of c. 15.5% in a period that includes a two-year bear market where ATT’s share price fell c. 80%.
The problem, of course, as Swensen shows, is that most newcomer investors (and even many seasoned pros) loaded up on stocks through the entirety of the 1990s bull market, declined to re-balance and take profits, then saw their portfolios decimated when the bubble popped, sold out close to the bottom in 2002 and 2003 and stuck what they could salvage into bonds, missing the best gains of the next bull market in the process.
Swensen estimated that the average US mutual fund investor had c. 30% in equities in 1993 and 1994, and that by the 2000 market peak that had doubled to more than 60%, while their bond holdings during that time had shrunk from 30% in 1993 to around 10% by 1999. By 2003, equities were down to 40% and bonds climbed to 19%.
If they’d successfully re-balanced, they’d have consistently locked in profits from their stock holdings and topped up their fixed income portion, setting themselves up well for the bursting of the bubble.
I see similar happening with the VanEck Semiconductor (SMH) and VanEck Space Innovators (JEDG) ETFs, which I see a lot of finfluencers recommending, despite the fact that SMH has returned c. 63% in 2023, 25% in 2024, 40% in 2025 and 79% since the start of 2026, while JEDG has returned c. 45% in 2024, 82% in 2025 and 96% since the start of 2026.
Now, I’m not saying that today’s period is the same as the dotcom bubble. Clearly, there are differences – there always are. However, my personal view is that the mega-IPOs of SpaceX, OpenAI, Anthropic, et al might signal the start of the end of the current tech bull market (which, don’t forget, has gone on for almost two decades now).
That’s certainly not a prediction and I’m prepared to be proven very wrong. The current bull run in stocks could continue for years, so I’m by no means selling all of my equity funds and trusts and trying to time the market.
What I am doing is assessing the performance of my holdings and deciding where I want to take profits. I have a few investment trusts in my portfolio that seem ripe for re-balancing. I’m up c. 120% in the space of around a year on ATT and similar gains have been seen in the emerging market space, most notably through Fidelity Emerging Markets (FEML) and Pacific Horizon (PHI).
Emerging markets are the area I’m particularly considering re-balancing. The initial purchases for the four EM trusts and funds I hold amounted to c. 8% of my portfolio. That’s almost doubled and EM trusts account for c. 14% of my portfolio. At the same time, while I expect EMs to do well moving forward, they’ve certainly become more attuned to the AI bubble. TSMC, Samsung Electronics and SK Hynix account for almost 25% of the MSCI Emerging Markets Index.
A good option for rebalancing my global EM trusts could be India, where the country is still going through a reset of equity market valuations. I’m still down c. 10% on my investment in Ashoka India Equity (AIE) and I remain of the view that this is an attractive point to be buying.
In the UK, too, Temple Bar (TMPL) and Fidelity Special Values (FSV) have gone from an initial investment of 5% to closer to 9%, while my UK small cap allocation has barely moved. Hence, re-allocating profits from TMPL and FSV into the likes of Aberforth Smaller Companies (ASL), as well as private equity names that have fallen recently such as 3i Group (III) and HgCapital (HGT) could be prudent moves.
Finally, Scottish Mortgage (SMT) is in line for a re-balancing, but I’ll likely wait until the blockbuster IPOs have happened and share prices have popped before pulling the trigger and using the proceeds to top up quality growth names such as Rathbone Global Opportunities and Evenlode Global Equity.
Having this week returned from two weeks in Puglia and Emilia-Romagna I’m probably all Tiramisu-d out, so perhaps now my (hypothetical investment) dessert will instead be a portfolio re-balancing.
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