Suits investors looking for long-term capital growth from the Continental European region. Its small-to-medium company bias means that it suits more experienced investors who are looking to add a more dynamic risk/reward exposure.

The Trust finds exciting growth opportunities within small and medium sized companies and many of these companies trade internationally. In addition it has some exposure to emerging Europe.

• The Trust invests in smaller, less well known European companies from very well known Western European countries.
• The stock-picking skills of the manager are ideally suited to seeking growth opportunities which exist even in an uncertain environment.
• The Trust targets companies with a strong competitive position in niche markets.

• Investors need to be aware of exchange rates. Most of the investments in this portfolio are not made in Sterling, so exchange rates could affect the value of and income from your investment.
• Most of the investments in this portfolio are in smaller companies shares. They may be more difficult to buy and sell and their share price may fluctuate more than that of larger companies. Full details of risks.

Europe (ex UK) smaller companies traded lower over the month as the attempted Cyprus deposits raid caused the market to give back some earlier gains. Whilst the actions set a dangerous precedent for how future crises could be handled, we think that the Cypriot situation is reasonably unique with a limited read-across to other European economies and banks. However, it does serve to remind us that political mis-steps remain one of the major risks to the recovery.

The Trust performed in line with its benchmark index, which is encouraging given the Trust’s gearing and the disappointing return from its holding in Spanish fish farming company Pescanova. The company failed to deliver its 2012 report and accounts as the auditor BDO has refused to sign them. The shares were suspended at €5.9. The Henderson Fair Pricing Committee has now written our holding down to zero, resulting in a 130 basis points loss to the Trust. We await more detail from the company and regulators on the now rumoured levels of elevated debt (€1.5bn higher than previously stated) as it is still unclear as to the cause of the capital shortfall, especially as the company had a rights issue as recently as last summer. We apologise as this has clearly been a disastrous investment. It is apparent that the information and accounts upon which we based our investment are at best ‘inaccurate’, particularly with regard to the debt levels.

On a more positive note we had strong returns from Fugro (geological data provider), Inficon (vacuums for semiconductor production) and Spanish telecoms company Let’s GOWEX. Let’s GOWEX specialises in providing ‘WiFi cities’; the ever-growing demand for internet access on-the-go is seeing the company win contracts and grow sales impressively.

We added Swiss flooring company Forbo to the portfolio. The company is generating high levels of cash that look likely to be returned to shareholders through buy backs or cash distributions.

Market noise seems to have intensified in recent months with notable over-reactions to both positive and negative markets news. Our somewhat simplistic view is that the global economy is getting better rather than worse. As we see further evidence of this we expect a continued switch of allocations from bonds to equities, in particular those that offer cheap valuations, earnings growth and a yield higher than bonds, i.e. European smaller companies.

Ollie Beckett
March 2013