Having extricated itself from the grip of Saba Capital and gobbled up rival European Assets Trust (EAT) last year, European Smaller Companies Trust (ESCT) sounds confident as it looks ahead to the rest of 2026.
ESCT, the biggest trust in its sector following the EAT merger that’s lifted its market value to £779m, made a 7.7% underlying return in the half year to 31 December, interims showed today, just ahead of the 7.1% from the MSCI Europe ex-UK Small Cap index.
Although a widening in the discount to net asset value (NAV) to 9.1% meant shareholders only got a 4.1% total return, they should be pleased having made 26.7% over one year and 60.39% over five, the latter ahead of both its main remaining rivals JPMorgan European Discovery (JEDT) and Montanaro European Smaller Companies (MTE). The gap between the share price and NAV now stands below 8% in line with its one-year average.
Fund managers Ollie Beckett, Rory Stokes and Julia Scheufler said there were good reasons to be optimistic. The stimulative effect of last year’s cuts in European interest rates from 3% to 2% would begin to be felt this year, while increased government spending on defence and infrastructure, particularly in Germany, would boost growth as the Covid era of unsold inventory passed and ceased to weigh on the economy.
While US tariff policy remained “capricious”, China subdued and prospects in France and Germany uncertain, the managers said they were positioned for recovery with stocks that have sensible capital structures and good management. “The opportunity set that we hunt in is rich with undervalued companies and we continue to uncover exciting opportunities”, they said.
The portfolio’s best three holdings in the period were: Acast, the Swedish podcast platform that did “a phenomenal job of growing during a soft advertising market”; Pfisterer, a German manufacturer of electricity grid cable connectors that raised forecasts after a strong order intake; and Safilo, the Italian luxury sunglass designer with a licensing agreement with Victoria Beckham which performed well after “compelling” results.
Two of its three biggest fallers, German web hosting business Ionos and Spanish travel technology provider HBX were partly hit by fears of disruption from low-cost artificial intelligence (AI) tools, which the managers considered misplaced. “In both instances, the logic behind how the companies will be disrupted seems a touch fuzzy and we think both companies will benefit from the adoption of AI,” they said.
The other detractor to performance was Stroeer, the German out-of-home advertising company that failed to sell its billboard business and delivered disappointing results.
Last month ESCT declared a 2.81p per share interim dividend, the first under its new policy of continuing EAT’s habit of paying out at least 5% of the previous year’s NAV, which was 224.4p at 30 June 2025. Further dividends at this level are expected in May and August paid from revenue and capital reserves.
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