European Investment Trust underperforms compared to Index- European Investment Trust plc (EUT) NAV total return for the year was -2.1% compared to the FTSE All-World Europe ex UK Index whose NAV for the year was 2.4%. Last year’s NAV was 29.9% which beat the benchmark last year by 7.3%. The share price discount to NAV did narrow slightly for the year going from 12.3% to 9.6%, share price total return was 1.2%. Dividends for the second half are 18p per share which brings the total dividends for the year to 27p per share which in an increase from last year’s dividend of 21.5 per share. Revenue per share for the year was 27.4p which increased 6.2% from last years revenue per share of 25.8p. This increase is due to the fact that there is a reallocation of the management fee and finance costs relating to borrowing from 1 October 2017. Two-thirds of the costs have been reallocated to capital to more accurately reflect the expect future (and observed past) returns from capital and income. European Investment has also seen an increase in dividend income, going from £12.2 million to £13.8 million which has also helped the increase in revenue per share.
The manager believes that the recent underperformance is due to governments no longer having economic policies that support and stimulate economic growth. This unknown about what will happen has led to volatility in the markets. This volatility has affected financials, private banking, and industrials. The leading contributing sectors in the fund are the following: Oil and Gas (+4.2%), Health Care (+0.4%), and Technology (+0.3%). The leading detracting sectors were: Consumer Services (-1.6%), Industrials (-1.6%), and Financials (-2.9%).
The manager did have this to say about the outlook of the European Investment Trust: “Economic fundamentals remain positive in Europe. Employment is growing and wage inflation is in evidence. The European Central Bank has confirmed the end of monetary easing with asset purchases to cease in December 2018 and that interest rates are likely to rise in the second half of 2019. However, there are a number of threats to this positive growth outlook. In Italy, an unusual alliance of the political left and right is proposing to increase government spending and reverse some of the structural reforms of the previous government. These policies put Italy at odds with the European Commission and could lead to renewed sovereign debt fears. The unresolved Brexit process represents another threat, particularly to countries and sectors with substantial trading links with the UK. However, the most significant risk comes from US trade policy, where the imposition of protectionist trade tariffs is bound up with an aggressive approach to China, which is adversely impacting industrial stocks and companies with emerging market exposures. Our central investment case is for ongoing recovery and modest economic growth in Europe, supporting a rise in the cost of money. This should lead to a reduction in the valuations of highly rated growth stocks and an improvement in the performance of stocks with lower growth expectations and starting valuations. However, with growing threats to the growth outlook, it is essential to maintain a focus on risk as well as reward.”
EUT- European Investment Trust underperforms compared to Index