European Opportunities Trust (EOT) has launched a strategic review in anticipation that its underperformance will trigger a 25% tender offer later this year.
Ahead of a continuation vote in October, the £405m investment trust managed by Alexander Darwall said it had consulted with shareholders and concluded now was the right time to review the company’s options.
It said these may include a merger with another closed-ended fund and / or a cash exit for shareholders at close to net asset value (NAV).
Alongside these the EOT board has also received an “outline proposal” from River Global, which bought Darwall’s Devon Equity Management last year, to roll the company into a new European open-ended investment company (OEIC). This could make it the next investment trust after Smithson to convert into an OEIC.
“Through the strategic review, the board will consider the merits of these options for shareholders in isolation or a combination thereof,” said the chair Matthew Dobbs. He added there was no certainty any changes would result from the review.
The trust’s shares rose 2.8% to 870p, further narrowing their 5.6% discount, as the market calculated that change was afoot.
Under the terms of the conditional tender offer, EOT has to buy back up to a quarter of its shares if its total growth in net asset value does not match or beat the MSCI Europe index over the three years to 31 May. Currently, over three years it has delivered an underlying NAV return of just 3%, way behind the benchmark’s 43%.
EOT, formerly Jupiter European Opportunities, followed Darwall after the manager left Jupiter Asset Management to found Devon in 2019 with Luca Emo Capodilista and Richard Pavry. The following year, in addition to the challenge of Covid, the trust was hit by the collapse of Wirecard, a German fintech in which EOT was 14% invested at one point.
Sentiment towards the former top-performing European trust never recovered with the shares falling to a discount. In October 2023, EOT became the target of the first public campaign by activist Saba Capital which unsuccessfully pushed for a 25% tender vote to be doubled and voted against continuation. The company also held an over-subscribed 25% tender last year.
According to a filing a year ago, Saba retained a 4.2% position having held 10% in 2023. US value investor Allspring holds 12% and Darwall owns 6.8%.
Our view
James Carthew, head of investment company research at QuotedData, said: “It is a shame to see the decline of EOT which at one time was the leading trust in its sector. Our preference would, as usual, be for anyone who wants to retain European exposure to roll their position into another investment trust rather than see the money go out to an open-ended fund.”
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