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European Assets Trust - a year to forget?

Kate Marshall, Senior Investment Analyst, reports on European Assets Trust's annual results for the year to 31 December 2018.

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.

  • Sam Cosh looks for companies he thinks will do well no matter what's going on in the economy
  • NAV total return of -15.4% compared with -12.7% for the trust's benchmark
  • Share price total return of -23.9% as the discount widened significantly
  • Total dividend of 8.15p per share for the year ended 31 December 2018

Investors started 2018 with plenty of optimism. Global economic growth looked fairly robust. And US President Donald Trump – one of the world's most influential leaders – laid down some policies that were expected to help support markets.

Global stock markets got off to a good start. But this quickly deteriorated. A litany of economic and political issues weighed on investors' minds and put pressure on share prices.

European Assets Trust didn't cope well in this environment. The broader market of European smaller companies fell, which didn’t help. But some other issues made things worse.

A year of weaker performance means the trust now trades on a discount to NAV (Net Asset Value) of 9.3%, compared with a 12-month average of 4.6%.

Sam Cosh, the trust's manager, has a good longer-term record, though past performance isn't a guide to future returns. We think the trust's dividend policy (to pay 6% of each year's opening NAV as an income in four payments) could appeal for an income portfolio. But it could reduce the potential for growth over the long run. It could also make it harder to make back losses in tougher years.

The manager has the flexibility to borrow money to invest (gearing), which increases risk. So does the trust's investments in smaller companies and the fact it only invests in a fairly small number of companies. Potential investors should look at the latest annual report and accounts and KID for details of these risks and charges. Charges are taken from capital, which can increase the yield but erodes the potential for capital growth.

Annual percentage growth
Feb 14 -
Feb 15
Feb 15 -
Feb 16
Feb 16 -
Feb 17
Feb 17 -
Feb 18
Feb 18 -
Feb 19
European Assets Trust 12.2% 4.2% 13.3% 25.2% -19.7%

Past performance is not a guide to the future. Source: Lipper IM to 28/02/2019

A tough year

The broader market of European smaller companies fell sharply last year, so it's not surprising the trust lost money. A few other things didn't help either.

The utilities and real estate sectors were two of the market's best performers in 2018. But the trust doesn't invest in these areas, so it missed out on the gains made.

Investments in the healthcare sector also held back returns. The main culprits were Gerresheimer, a German pharmaceutical packaging company, and Diasorin, an Italian immunodiagnostics testing company. Sam Cosh is still optimistic about their longer-term prospects, so he's kept both companies in the trust.

There was some good news as well though. Tomra, a Norwegian recycling company, performed best. It has a dominant market share in reverse vending machines, which help recycle plastic bottles. Plastic pollution is attracting more and more attention. So the company could benefit if more countries use this approach to recycling.

Outlook

There's plenty of uncertainty in markets at the moment and Sam Cosh is aware of the risks. So he's slightly reduced the trust's exposure to companies that are affected more by the state of the economy, or have high levels of debt.

Overall though, he continues to focus on companies he thinks will do well no matter what's going on in the economy. He prefers those that make a good amount of cash, are in a healthy financial position, and have strong business models that mean they should be able to beat the competition.

Key investor information

More on this trust, including charges

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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