EUROPEAN SMALLER COMPANIES TRUST: Runs with the winners globally

Despite the economic problems that many European countries continue to face, some businesses based across Europe are thriving like never before.

It’s one of the main reasons why investment trust European Smaller Companies is underpinned by rather good performance numbers.

Over the past year, it has delivered overall returns of just over 23 per cent while over the past five years, it has registered a gain of 95 per cent. Trusts with a similar investment mandate have somewhat trailed in its wake.

Along with two colleagues at investment house Janus Henderson, Ollie Beckett runs the £739million trust that is listed on the London Stock Exchange.

He says: ‘There is lots of political noise swirling around Western Europe after the European Union elections and President Macron’s decision to hold a snap election in France. And yes, economic growth is desperately needed.

‘But the fact remains that there are lots of European companies doing a good job on the global stage. They are selling their wares into the United States, China and India – and doing well on the back of it. These are the companies we like – businesses more dependent on global rather than European markets.’

A quick look at the trust’s biggest holdings confirms this approach. For example, German pump manufacturer KSB sells a vast range of industrial pumps into China and India while Suss MicroTec (also German) provides components to the likes of semi-conductor giants TSMC and Samsung.

‘The German economy may resemble something of a shambles at the moment,’ says Beckett, ‘but these businesses are enjoying huge growth in overseas sales.’

The trust has a diverse portfolio of 131 holdings. The biggest position – 3.1 per cent of the trust’s assets – is in Dutch private banking group Van Lanschot Kempen.

‘As a rule, we don’t tend to invest more than five per cent of the fund’s assets in any one stock,’ says Beckett. ‘In the smaller companies’ space, diversity pays – not high conviction investing. As an investment manager, you are going to get around 44 per cent of your stock picks wrong.

‘You then make investors money from the remaining 56 per cent, The key is to gain confidence in these winners, build positions and run with them. That way, you make profits for your shareholders.’

To prove this point, ‘winners’ such as Van Lanschot, KSB and Suss MicroTec (all top ten holdings) have been in the portfolio for nine, 13 and 12 years, respectively.

In contrast, the trust jettisoned several companies last year, including Swedish media company Viaplay and Swiss manufacturer Meyer Burger, as Beckett says they proved to be ‘wrong’ investments. Recent purchases include a stake in Swedish printed circuit board manufacturer NCAB.

Beckett says his focus is always on buying undervalued companies. ‘We’re constantly looking for businesses whose share price does not reflect its true value. This can result from a company having underperformed because of poor management – or where the business’s value is not appreciated by the market.’ Beckett says the diversity of stock markets and companies in Europe provides opportunities to unearth gems. ‘They are markets for stock pickers,’ he adds.

The trust has ongoing annual charges of 0.65 per cent. Its market ticker is ESCT, and its stock market identification code is BMCF868. Investment trusts with a similar mandate are European Assets, JPMorgan European Discovery and Montanaro European Smaller Companies.

  • Beckett runs the fund alongside Rory Stokes and Julia Scheufler.