Edison Investment Research Limited
London, UK, 8 September 2021
European Opportunities Trust (JEO): Initiation - A 'fund for all seasons' targeting global winners
European Opportunities Trust (JEO) invests in European and UK companies offering good prospects for capital growth. Alexander Darwall has managed JEO since its inception in 2000. He aims to construct a 'fund for all seasons' comprising stocks capable of generating profits in all economic climates. Darwall is a high-conviction investor and JEO is a concentrated portfolio of 'special', globally focused companies that benefit from unique technologies or favourable industry structures and possess multiple growth channels. Performance in the year ended May 2021 was disappointing, in part due to JEO's bias towards high-quality companies, which lagged more economically sensitive stocks in late 2020, when the economic outlook was transformed by the arrival of viable vaccines. JEO also had exposure to the fraudulent German company Wirecard when it collapsed in June 2020. However, the trust's long-term performance has been positive in both absolute and relative terms. It has realised an annualised NAV total return of 14.1% over the past 10 years to end August 2021, compared to an annualised benchmark return of 9.9%. This track record attests to Darwall's ability to deliver sustainable capital growth, regardless of prevailing economic conditions.
JEO's share price is currently trading at a 9.4% discount to cum-income NAV, significantly above its long-term average of 3.3%, in part due to the trust's exposure to the 2020 Wirecard fraud. The board's consistent efforts to support the share price have scope to narrow the discount, especially if performance improves and/or investors come to appreciate the relative value offered by European equities at current levels.
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