European Assets Trust (EAT) aims to generate long-term capital growth through investing in quoted small- to medium-sized companies in Europe, excluding the UK. Over the past 10 years, EAT’s NAV total return (TR) has generated an annualised return of 12.9%. The board has a high payout policy and a 17.2% increase in the declared FY20 dividend results in a forward yield of 6.6%. Previously dual-listed in Amsterdam and London, EAT completed its legal migration to the UK in March 2019. The board believes a premium listing on the London Stock Exchange and becoming a constituent of the FTSE SmallCap and FTSE All-Share indices could broaden EAT’s appeal and help close the trust’s NAV discount over time.
Europe’s economy has proven to be more resilient than often perceived and despite a sharp contraction in international trade and manufacturing, the eurozone has avoided recession with the pick-up in the domestically focused services sector. European equity valuations do not appear overstretched and there is a very wide dispersion within the universe. In this environment, a fundamental approach to investing in mid- and small-cap stocks may offer more interesting longer-term opportunities.
◼ Long-established rigorous bottom-up investment process seeking high quality, well-managed companies that trade at a discount to intrinsic value.
◼ High-conviction, well-diversified portfolio of around 40 stocks.
◼ The manager is benchmark agnostic, has a long-term investment horizon and is comfortable with being contrarian.
EAT’s shares are currently trading at an 8.4% discount to cum-income NAV, which is wider than the 2.7% five-year average. The board is committed to managing the volatility of the discount and improving returns for shareholders. It believes the trust’s recent legal migration to the UK should broaden its shareholder base and, combined with the continued high dividend payout policy, may help EAT’s discount return to its historically tighter levels over time.