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.

December began poorly as it became clear that we would not be getting the ‘bazooka solution’ that many anticipated from the European Union summit. Instead we got more political gesturing and the hope of moving toward fiscal integration and discipline. In a more significant move the European Central Bank (ECB) announced it would offer European banks unlimited loans at a 1% rate over a three-year period. It also loosened its collateral requirements for these loans taking away the most immediate risk – a bank funding squeeze – to the sector and market. Over the course of the month small caps lagged their larger peers.

Fund activity included the purchases of Sorin, Sulzer and Parrot. Sorin is a high-quality medical device manufacturer, which stands to benefit from a number of new product launches. Sulzer, which manufactures pumps, is also of good quality and we expect the two stocks to be core holdings for a considerable period. Parrot predominantly manufactures and sells hands-free systems for cars, and at current valuation levels looks an attractive investment. As a part of the ongoing fund restructuring we top-sliced Washtec, a producer of vehicle washing equipment, and Morpol a Norwegian firm involved in the processing and selling of salmon products, which are two of the portfolio’s less-liquid holdings.

The recent depreciation of the Euro has hindered returns as the portfolio is not currently hedged against currency movements. The market volatility forced the discount wider in December. We decided not to take action as buybacks would have been difficult in a market where volumes were low. We are constantly monitoring the spread and will potentially take action when market volumes increase.

Volatility and uncertainty look set to continue as 2012 will likely herald further political wrangling and inaction. The latest moves by the ECB should ease some of the immediate fears surrounding the financial sector and given the low valuations we would expect equities to make gains over the course of the year. Especially as consensus positioning is to underweight Europe.

Ollie Beckett
December 2011