European Opportunities Trust (EOT) is to wind up and give shareholders a choice of rolling into a new open-ended Liontrust fund run by manager Alexander Darwall or switch into the top-performing JPMorgan European Growth & Income (JEGI) if they wish to remain in an investment trust.
There will also be a full cash exit at a 2% discount to net asset value.
Announcing the conclusion of a three-month strategic review, chair Matthew Dobbs said the liquidation of the former sector leader was the best option for shareholders: “After consulting with shareholders, the board is pleased to present proposals which offer a range of choices to meet the differing requirements of the disparate elements of the shareholder base. Those shareholders who wish to continue investment in European equities have a choice of investment structures and managers, while those who prefer to exit for cash have an uncapped opportunity to do so.”
EOT shares rose 2.9% to 946.9p in early trading, narrowing their 6.5% discount to net asset value (NAV). JEGI was broadly unchanged at 146.8p.
Although not the worst performing European investment (that wooden spoon currently belongs to Baillie Gifford European Growth BGEU), European Opportunities Trust has underperformed its benchmark over three years with the portfolio growing 12% compared to the 45% return from the MSCI Europe index. As a result it was facing having to hold its third 25% tender offer in three years. That was a sign of how the former top performer had never recovered from the 2020 collapse of Wirecard, the German payments company that had been its top holding.
EOT said shareholders holding 47.8% of shares in the £831m investment trust had expressed support for the proposals. It is not known yet if these include Saba Capital, the activist hedge fund which last disclosed a 4.7% stake over two years ago. This had come down from 10% in 2023 when Saba unsuccessfully pushed for its first tender offer to be doubled to 50%. US value investors 1607 Capital Partners and Allspring Global both hold around 10% according to recent filings.
The reconstruction under section 110 of the 1986 Insolvency Act will take place in the third quarter. The rollover into either JEGI or the new Liontrust fund will be exempt from capital gains tax.
JEGI, a £622m trust run by Alexander Fitzalan Howard, Zenah Shuhaiber and Timothy Lewis at JP Morgan Asset Management, has the strongest investment performance in the AIC Europe sector over one, three and five years to 27 May with net assets up 23%, 57% and 83% respectively, according to figures from the company. This beats the benchmark’s 19%, 44% and 56%.
It currently offers a 3.4% yield, the sector’s highest, reflecting its enhanced dividend policy of paying out 4% of net assets each year from income and capital.
Shareholders who want to stick with Darwall will have to move into a new open-ended fund, LT European Opportunities (LEO), to be launched by Liontrust, which is buying River Global, the parent of the manager’s company Devon Equity Management, in March.
Investors in LEO will be able to sell their holdings at asset value on a daily basis. Devon is making a “significant cost contribution” to the reconstruction, with some of its money going to ensure shareholders who switch into Darwall’s new fund will be in the same position as if they had taken cash in the liquidation of EOT.
JP Morgan is also contributing its first year of management fees on the money rolled into JEGI.
JEGI shares currently trade at asset value, reflecting its strong performance and active discount management policy. Its 0.64% annual ongoing charges make it slightly cheaper than LEO which is expected to charge 0.72% a year and well below EOT’s 0.94%.
JEGI chair Rita Dhut was pleased that the investment trust had the chance to scale up at a time when investors are demanding access to larger, more liquid and cost-efficient funds.
“It is an exciting time to be investing in Europe. Enthusiasm for Europe’s world-class companies is rising and we are delighted that the board of EOT has selected JEGI as the default rollover option for its shareholders.
“We believe that the investment trust structure provides a number of advantages for long-term investors which JEGI utilises for the benefit of its shareholders. We are proud that JEGI has delivered sector-leading performance, attractive income, and excellent value for its shareholders,” she said.
Our view
Matthew Read, senior analyst at QuotedData, said: “This looks like a pragmatic outcome from European Opportunities’ strategic review and, importantly, gives a shareholder base with differing needs a decent range of options, while allowing longer-term investors with capital gains to avoid crystallising them. Those who want to stay with Alex Darwall can roll into the new LT European Opportunities open-ended fund. Those who want European exposure in a closed-ended structure can move into JPMorgan European Growth & Income. Those who want neither have an uncapped cash exit, albeit at a 2% discount to residual NAV. With the proposals already backed by nearly half the share register, they look to have a strong chance of getting over the line.”
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