Contenders: 12 trusts in the Europe and European Smaller Companies Sectors
Winner: TR European Growth
TR European Growth Trust (TRG) has notched up much the best returns in the European sector since Ollie Beckett took change in July 2011. It is the runaway winner of this award.
Beckett started his tenure by cutting TRG’s exposure to eastern Europe and its holdings in larger companies. He has since focused predominantly on companies with a market capitalisation of less than £1 billion, which is smaller than most of his peers. With around 140 holdings, he is prepared to venture well down the size spectrum in search of companies with exceptional growth potential, and around 10 per cent of the portfolio is in companies capitalised at less than £300 million.
His successful investments have ranged from small structural growth companies on high earnings multiples but with outstanding long-term prospects, to companies on low valuations because the market has yet to take account of their turnaround potential. The former have included IBA, the world leader in proton therapy, while the latter have included PUMA and the Danish ferry company DFDS, both of which have prospered after a change in management.
The trust fared poorly in mid-2016, because Beckett was totally unprepared for the result of the EU referendum, but it recovered strongly after he raised gearing to 15 per cent to invest in European companies that had been knocked back because of their UK exposure. Around the same time he started to buy into several small banks, on the basis that they looked cheap and would do well if inflation started to pick up, and has been well rewarded.
With gearing of around 11 per cent, Beckett is positive about the outlook for his trust. ‘Corporate Europe has massively lagged the US and UK in terms of earnings growth since the financial crisis, and there is huge catch-up potential so long as the US and China continue to grow,’ he says. ‘A lot of European companies don’t have great pricing power, but if inflation and the economy continue to pick up, there is massive upside in Europe and in European smaller companies.’
Highly commended: Montanaro European smaller companies
Montanaro European Smaller Companies Trust (MTE) claims our highly commended award thanks to a well above-average year in 2105 and a reasonable one in 2016. Montanaro manages over €3 billion in European and UK mid and small cap companies, and its 10-strong team of analysts make frequent company visits. They invest on a long-term basis in quality growth companies, and while this has resulted in some very disappointing years, it has worked well longer-term.
The managers believe the European economy looks strong, with unemployment below 10 per cent for the first time in seven years. They say European smaller companies offer good value compared to many other areas, and expect them to maintain their long-term outperformance of large companies. Despite this, the trust is deploying only half its long-term gearing.
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