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.
October was yet another strong month for European smaller companies. The market brushed aside troublesome US politics, where the government shutdown was concluded with a postponement of any real decision on how to tackle the high debt levels. Share prices were instead supported by a continued flow of capital into the asset class and corporate earnings growth forecasts for 2014.
The Trust saw strong performances from German bank Aareal and Danish jeweller Pandora. Aareal has been reaping the rewards of conservative management throughout the crisis, while Pandora pre-released third quarter figures that showed that the company’s recovery is progressing nicely with organic sales growth of 33%. Cable manufacturer Nexans was the portfolio's most disappointing holding, announcing a downgrade to profits and a capital raising (in which we have participated). We believe the company's strong market position in copper cables should ultimately see its profits recover.
Over the month we bought French concessions company Eiffage as a number of important contracts have been extended by the government. We also added Vienna-based UNIQA Insurance Group, which has been a poor performer for a number of years. We believe it is a credible turnaround story as new management are seeking to streamline the business, clean up the corporate structure and ease solvency fears over the balance sheet. If this is achieved the stock is too cheap. Disposals included Acino, which was subject of a bid, and we also took profits in Cargotec (cargo handling) and DMG Mori Seiki (machine tools).
Leading gross domestic product (GDP) and activity indicators pulled back in October yet continue to point toward growth in the fourth quarter and into 2014. Our conviction remains that we are in a period of recovery that will be slower than others we have seen in the past. In such a scenario there will be periods when the market and expectations get ahead of the reality; however, we believe the overall trend for European smaller companies will be upward. We look for the stocks that will perform best in this environment.