European Smaller Companies Trust (ESCT) has announced its annual report for the period ended 30 June 2023. NAV total return for the period was 16.4%, ahead of the benchmark Euromoney Smaller European Companies (ex UK) Index, which was up 10%. Share price total return was 13.6% with the discount now sitting at 14%.
Following a challenging period over 2022, where NAV fell 21%, management have been happy with the resilience of the trust over its last financial year, particularly given the wider macro concerns which have continued to impact global returns.
Commenting on the performance, chairman Christopher Casey noted:
“The spectre of recession has hung over the global economy for much of the last year, but it has been far more resilient than the bears have suggested it would be. It seems increasingly probable that a ‘soft landing’ is achievable as supply chain bottlenecks have begun to clear, relieving inflationary pressure, and the labour market has proved to be robust enough for the consumer to be cushioned from the burden of rising interest rates. Smaller companies are a good indicator of the economic cycle improving and normally rally before the economic data confirms the trend. The fund management team has always preached their valuation discipline and we are optimistic that they will be able to take advantage at this stage of the cycle.”
Regarding the outlook, he continued:
“I have warned of the prospect of inflation since the Annual Report 2020, but the Board does not expect inflation to remain at the high levels we have been experiencing recently. We are, however, of the view that moderate inflation and elevated interest rates, compared to the recent past, are likely to be a persistent feature of the global economy going forward. The dislocations in the global economy between the USA and China appear structural. Supply chain resilience is clearly now a priority of the corporate sector and will alter the disinflationary dynamic of the last twenty years, notwithstanding that China exiting Zero-Covid should help ameliorate short term inflationary pressures. The ‘Green Transition’ will require substantial capital expenditure that will also be inflationary. Exciting technologies such as Artificial Intelligence will no doubt create some disinflationary pressure, but we doubt it will be as significant as the advent of the internet.
“The valuation aware approach employed by the fund management team should be able to flourish in a market that has some very exciting companies trading at extremely low valuations. Whilst Europe doesn’t have the global tech titans which have dominated the market in recent years, the plumbing of the new economy has been delivered by smaller companies based in Europe and we are confident that the fund management team can continue to deliver attractive returns for you.”
ESCT : Bounce back year for European Smaller Companies Trust