TR EUROPEAN GROWTH TRUST: The fund that has big ideas in world of small firms
It is not just in the UK where smaller companies are expected to outperform the rest of the stock market in the months and years ahead.
Ollie Beckett, a fund manager with investment house Janus Henderson, is convinced the same process will be repeated across Europe, although he accepts that coronavirus could stall economic growth – a prerequisite for smaller companies to thrive.
‘Smaller companies in Europe tend to outperform when there is an improvement in European manufacturing activity,’ he says. ‘Industrial output in turn is influenced by the global economy.
TR European Growth Trust invests in some 140 smaller and medium-sized companies across 16 countries
Coming into this year, it seemed all the conditions were in place for Europe’s economic activity to pick up. If the virus can be contained, then there should be a V-shaped recovery in the second half of the year.’
Beckett runs the £476million TR European Growth Trust, a fund investing in some 140 smaller and medium-sized companies across 16 countries. He is constantly looking for businesses that are undervalued and where the perception of the market is wrong.
It involves a lot of financial analysis and meetings with company management to identify evidence of positive change – potential turnaround situations. It’s an approach that sometimes takes a while to come through in terms of performance numbers and can result in periods of underperformance.
So, over the past two years, the trust has lagged behind all of its three main rivals – JP Morgan European Smaller Companies, European Assets (managed by BMO) and Montanaro European Smaller Companies.
Nexans is a French cable company which Beckett is convinced will benefit from the move for cleaner energy across Europe
Beckett describes the trust as an ‘outlier’ although he is happy to be patient. ‘There are a lot of expensive stocks in the smaller companies space that have become too expensive. It reminds me of the tech boom in the late 1990s. I don’t want to own stocks that everyone else owns and I certainly don’t want to be holding them if the economy slows down.’
Instead, Beckett has built a portfolio with a strong emphasis on ‘value’ and ‘value anomalies’.
Among the trust’s top ten holdings is Nexans, a French cable company that has seen a new management team installed, costs cut to the bone, but which Beckett is convinced will benefit from the move for cleaner energy across Europe.
Beckett says he is sitting on ‘a lot of value in the portfolio’ and, coronavirus notwithstanding, he says there are encouraging signs across Europe – for example, a pick-up in mergers and acquisitions and evidence of a revival of the automotive industry on the back of new hybrid and electric cars.
He has exposure through holdings in German car sensor manufacturer Elmos and Stabilus that builds the springs that enable car boots to open and close with the press of a key fob.
Although the trust’s short-term performance numbers are not flattering – a three-year return of just under 6 per cent – Beckett hopes his ‘value’ stance will win through. The annual ongoing charge is a tad over 0.7 per cent. The trust’s shares yield an annual income of just over 2.3 per cent although this is not a vehicle for income seekers.
London Stock Exchange identification codes: TR European Growth (0906692); JP Morgan European Smaller Companies (BMTS0Z3); European Assets (BHJVQ59); Montanaro European Smaller Companies (0454351).