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European Opportunities Trust – November 2022 update

Investment Analyst Josef Licsauer shares our analysis on the manager, process, culture, ESG integration, cost and performance of the European Opportunities Trust.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

  • Alexander Darwall has been the lead manager on the trust since it launched in 2000 and boasts over three decades of experience investing in European equities
  • The manager's focus on ‘special’ companies has helped deliver impressive results since launch
  • More recently though, the trust’s performance has struggled and it’s currently trading at a wide discount to net asset value (NAV)

How it fits in a portfolio

The European Opportunities Trust invests in high quality companies that offer good growth potential over the long run. Almost 85% of the trust is invested in the UK, France and Germany, with the rest spread across Denmark, Finland, Spain, Norway and the Netherlands. Although the manager invests in higher-risk small and medium sized companies, most of the trust is made up of larger, more established European companies.

We think the trust could be a good choice for exposure to European companies or help form part of a wider investment portfolio focused on long-term growth. When investing in closed-ended funds you should be aware the trust can trade at a discount or premium to NAV.


Alexander Darwall is considered a veteran when it comes to investing in Europe. His career spans across three decades, where he has fully immersed himself in the world of European equities. He started his career as an equity researcher at Goldman Sachs and later joined Jupiter Asset Management in 1995. During his time with Jupiter, he became the head of strategy for European equities and ran a number of European funds. He has managed the European Opportunities Trust since it launched in November 2000.

In 2019, Darwall left Jupiter to launch Devon Equity Management (DEM), where he now also serves as the Chief Investment Officer. When he left Jupiter, he decided to take the European strategy he ran with him. Darwall is a highly experienced manager in the European equities space and has typically done well over his time in the industry.

Darwall has the support of the wider investment team at DEM, including senior fund manager Luca Emo, who moved across with him from Jupiter. Charlie Southern joined the firm in the early part of 2020 as a fund manager and James Bird came on board in 2021 as a research analyst.

Despite having a smaller team compared to his time with Jupiter, Darwall believes the size and focus of the firm means he’s more supported and resourced than ever. He’s able to focus more of his time on fund management and can call upon a close-knit team who aren’t afraid to provide challenge and debate when it comes to investment decisions.


The investment process remains unchanged following Darwall’s move to DEM. He retains his focus on identifying and building a list of ‘special’ companies. To earn this title, companies must meet a number of criteria, but two in particular shine through. The first is whether a company can withstand its competitors in order to grow stronger over the long run, preferring businesses that provide a product, service or unique advantage others will struggle to replicate. The second is that the company can grow through a cycle and flourish in a variety of different economic environments. Some of these companies conduct business across the globe which means they're not only dependent on customers in the European countries they're based in.

There are some other important traits to consider as well. Companies with strong balance sheets, little to no debt, high recurring revenues and stable cash flows are favoured. They must also be able to demonstrate strong pricing power - the ability to pass on rising costs to consumers without denting demand too much. Alongside this, an emphasis is placed on a company’s culture and governance. Businesses need to be fully aligned with shareholders and if they can evidence strength in this area, it can lead to success over the long term.

Having a long-term focus typically means there are fewer changes made to the portfolio over time. The manager tends to invest in a relatively concentrated number of companies, meaning each investment could have a big impact on performance, which increases risk.

That said, there have been a few changes made over the last 12 months. The manager bought more shares in GTT and Oxford Instruments. GTT is a firm that provides engineering and design technologies to liquefied natural gas carriers and is benefiting from the rise in energy prices. Oxford Instruments help design components in the semiconductor space and released some very positive results.

When it comes to selling or reducing an investment, there tends to be three key triggers and at least one of these must occur. The first is if the business model is failing and this looks like part of a longer-term trend. The second is if the manager identifies more exciting opportunities elsewhere. The third is based more on valuations. If the share price of a company is too high and the manager no longer sees the balance between the risk and reward, they’ll sell. Gaming company Ubisoft and crop distributor KWS Saat were sold due to loss of confidence.

Investors should be aware that the managers use gearing (borrowing to invest) which can magnify any gains or losses and increases risk.


DEM was launched in 2019 and prides itself on its collegiate culture. DEM also promotes a strong focus on shareholders' interests and ensures they align with those of fund managers. Each manager sees themselves as part owners of the trust and invest a large portion of their own wealth. This helps make sure the trust is run in a way that benefits all shareholders.

The board has also implemented a more enhanced risk management process. This was introduced off the back of Darwall’s previous investment in German fin-tech company, Wirecard. Over time, Darwall built up a significant investment in the company and at its peak reached 17% of the trust. Such a large investment in a single company means the trust could benefit from positive performance but a large fall if anything goes wrong. In this case, Wirecard was exposed for fraud which led to the collapse of the company. This hurt the trust’s performance and was a reminder of the risks of owning such a large stake in any one company.

Managers over their career will make mistakes, but it’s the lesson learned that could improve the potential for long-term success. Implementing a better risk management process means Darwall, and other managers at DEM, now can’t invest more than 10% in a single company. His co-manager Emo also has veto rights on when an investment increases in size.

These appear to be sensible changes as it puts Darwall's investment decisions under more scrutiny, without limiting his ability to build a strong portfolio and allowing him to run money in a style that has done well over the longer term.

ESG Integration

DEM's employees are given the flexibility to integrate environmental, social and governance (ESG) considerations in a way that best fits their investment approach. Darwall is particularly focused on governance because understanding and assessing a company’s culture is crucial to long-term success.

The fund managers engage with the companies they invest in on a range of issues, including board make-up and remuneration concerns. Darwall recently engaged with the Chairman of Darktrace to discuss the controversial management incentive plan.

The fund managers are responsible for voting and will consider each resolution on a case-by-case basis. They believe voting is critical to fully understanding the company and the way it’s managed. The firm provides a good level of transparency around their voting activities. The full voting record can be found on DEM’s website, and rationales are provided in cases where the team votes against company management.


The ongoing annual charge over the trust’s financial year to 31 May 2022 was 1.02%. This is an increase from last year’s charge of 0.99%. Investors should refer to the latest annual report and accounts, and Key Investor Information for details of the risks and charging structure. If held in a SIPP or ISA the HL platform charge of 0.45% (capped at £200 for a SIPP and £45 for an ISA) per annum also applies. Our platform charge doesn’t apply if held in a Fund and Share Account. As investment trusts trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges within any Hargreaves Lansdown account.


The trust has performed well since it launched in May 2000. Over this period, its returned 653.69%* vs 292.41% for the AIC Investment Trust Europe sector. Remember past performance is not a guide to the future. Investments and any income they produce can go down as well as up in value, so you could get back less than you invest.

Over the past 12 months though, performance has been mixed. European markets continue to be impacted by spiralling inflation, rising interest rates and higher energy costs. This meant that certain sectors including energy, utilities and banks have held up well. Darwall tends to be underweight in these areas, compared to the market, so has missed out on the gains from each of the sectors. There have also been a number of companies in the trust that detracted from performance over the same period.

Some of the worst offenders are animal genetics leader Genus, private equity company ICG and semiconductor manufacturer Infineon Technologies. Genus has been hit by a sharp decline in the sale of porcine genetics to China, though it started to see some recovery over the last two months. Rising interest rates continued to hamper ICG and Infineon is battling against semiconductor headwinds.

On the flip side, there have been a number of investments that have held up well and delivered good returns. Novo Nordisk is one the trusts strongest performing companies. The pharmaceutical giant did well following an increase in demand for three of its new diabetes and obesity drugs. Deutsche Boerse has been another stalwart for the trust. It performed well after releasing strong results and is expecting to benefit from higher interest rates and greater volatility in financial markets.

Annual percentage growth
Oct 17 – Oct 18 Oct 18 – Oct 19 Oct 19 – Oct 20 Oct 20 – Oct 21 Oct 21 – Oct 22
European Opportunities Trust 10.06% -1.81% -12.65% 29.12% -20.84%
AIC Investment Trust - Europe -5.06% 9.40% 6.19% 38.76% -25.88%

Past performance is not a guide to the future. Source: *Lipper IM to 31/10/2022.


VIEW The European Opportunities Trust KEY INFORMATION DOCUMENT

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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