Montanaro European is number one – Montanaro European Smaller Companies reports that for the year ended 31 March 2020 its NAV return was -5.3%, which compares very favourably with the -15.1% return generated by the MSCI Europe (ex UK) Small Cap Index. Shareholders benefitted from a narrowing of the discount from 12% to 8% and this translated into a return of -1.1% for the trust’s shareholders. Between 31 March 2020 and 15 June 2020 (being the latest practicable date), the NAV rose from 956.9p to 1,216.6p, an increase of 27.1%. As a result, the NAV was 10.7% higher than 12 months earlier. Total dividends for the year were 9.25p per share, an increase of 2.8% compared to the previous year.
The trust is now the best performing in its sector over three and five years. The manager’s focus on investing in investing in high quality companies, with strong management teams, sound balance sheets, cash generative business models and good growth prospects underpins the fund’s returns.
Performance attribution
Extracted fro the manager’s report: “Sartorius Stedim the developer of equipment used to manufacture biologic drugs, again delivered excellent financial results. As a supplier of critical components to develop and manufacture vaccines, we believe the company has a significant role to play in the global response against Covid-19.
Fortnox provides cloud bases accounting systems to companies in Sweden. The company’s market leading product and the inherent scalability of its distribution ensured another year of rapid growth and expanding profitability.
MIPS sells a patented insert for recreational helmets which protects against rotational motion. More and more helmet brands have been adopting the technology in their ranges and some are now even using it every helmet model they produce. The higher adoption drove a strong period of growth.
Our largest detractor was MTU Aero Engines which develops, manufactures and repairs aircraft engines. The company was the largest contributor to performance last year and continued to perform well through 2019. However, the Covid-19 crisis has led to unprecedented declines in global air traffic, from which it is not immune.
Merlin Properties, the Spanish commercial Real Estate Investment Trust, also saw its share price drop significantly as a result of the severe lockdowns in its core markets. These lockdowns limit the ability of some of Merlin’s tenants to operate and in turn pay rent to the company in the short term.
Atea is the market leading supplier of IT infrastructure for businesses and public sector organisations in the Nordic and Baltic regions. The company’s share price suffered as the traditional end-of-year budget flush by their customers was weaker than expected and as the Danish subsidiary underperformed. We believe these issues are temporary and that the company is well positioned for the future, hence we added to our position.”
[There have been periods when Montanaro’s approach left it trailing the market – as ebullient investors piled into highly speculative stocks, for example. In times like this, which unfortunately come around reasonably frequently, the trust’s approach shines through and this translates into long-term success. One small section in the report sums up the long-term thinking behind the trust “Montanaro has always retained high levels of cash precisely for times like these. In past bear markets we have grown the team. This time is no exception and we have recruited a healthcare analyst and made two further additions to our back office team.” The manager is laying the ground for future outperformance.]