Contenders: 12 trusts in the Europe and European smaller companies sectors. And the winner is...
Winner: Montanaro European Smaller Companies
Montanaro European Smaller Companies Trust (MTE) is too small to interest most wealth managers, but private investors should not ignore it, as the trust has outperformed the MSCI European Smaller Companies ex UK index in each of the past four years. What’s more, European small caps have outperformed large caps in all but five years since the millennium.
MTE was the only European trust to achieve positive NAV returns in the 12 months to the end of January, thanks to a very strong run to the end of September and a good recovery in early 2019, and its three-year NAV returns compare handsomely with the 35.3% return on its benchmark.
Montanaro has £2.1 billion under management in European and UK mid- and small-cap shares. It manages its portfolios on a team basis. Ten analysts focus on specific sectors using a range of proprietary screens and industry knowledge. Trust chairman Richard Curling attributes the trust’s success to an emphasis on “quality companies” and its willingness to pay for them.
MTE’s portfolio is comprised of 53 holdings, none of which exceeds 3.5% by value, and its geographic exposure is interestingly different, with Sweden and Germany both accounting for 21%, followed by Italy at 18%. Industrials are the largest sector at 21%, followed by healthcare and information technology. Financials, where it has recently suffered several disappointments, are at 13%. The active share compared with the benchmark index is 90%.
The team suspect that markets could again prove volatile in 2019 . Their caution is reflected in negligible gearing, compared with a three-year high of 13%.
Managed by a team, headed since 2006 by George Cooke
Sector European smaller companies
3-year NAV total return 61.4%
3-year share price total return 63%
Average discount for sector -10.9%
Ongoing charges 1.20%
A year ago, TR European Growth Trust (TRG) was riding high. It has since suffered a steep setback, but bounced well in January and has the second-best three-year NAV total returns in its sector.
Manager Ollie Beckett attributes last year’s travails to a variety of causes, including over-exposure to cyclicals, half a dozen poor individual stock picks, and being too value-oriented in a market focused on “earnings momentum at any price”. TRG’s exposure to micro-cap shares turned sour as macroeconomic worries made investors more risk averse. Being geared into falling markets exacerbated the rout.
However, Beckett is upbeat, saying the economic background is not significantly worse than it has been over the past decade. Anaemic growth is likely to continue and many European smaller companies are now on much more appealing valuations. Gearing of 15% is testament to his confidence.
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