JPMorgan European Growth and Income (JEGI) has underlined why European Opportunities Trust (EOT) last month chose it as the main rollover option for shareholders in its wind-down with annual results boasting a 20.1% investment return for the year to 31 March.
JEGI’s advance in net asset value beat the MSCI Europe ex-UK’s 14.8% return by 5.3% and underpinned a 21.2% total return to shareholders that included 5p in quarterly dividends under the trust’s “enhanced” policy of paying 4% of net assets each year.
Chair Rita Dhut said the 12-month return, which was achieved with gearing or borrowing of around 5%, “extends JEGI’s record of consistent outperformance”. Despite the recent volatility from the Iran war, the shares currently lead their sector over one, five and 10 years with total returns of 29.6%, 106.9% and 277.3%.
JP Morgan fund managers Alexander Fitzalan Howard, Zenah Shuhaiber and Tim Lewis said French utility Engie was their best stock in the period after a well-received acquisition of UK Power Networks that boosted investor confidence in the future earnings from its renewables business.
In capital goods, ABB, a Swiss specialist in electrification, robotics, and automation, and Prysmian, the Italian manufacturer of energy and telecom cables, benefited from record investments in artificial intelligence (AI) data centres which they said were driving global power demand.
Pharmaceuticals were their best sector as the portfolio benefited from an “overweight” compared to the index in Novartis of Switzerland and an “underweight” to Sanofi of France.
The trust also did well from its holdings in banks although not owning BBVA detracted from returns as the Spanish bank resumed share buybacks after a bid for local rival Banco Sabadell failed.
During the year they made a big decision to sell German accounting software provider SAP and French advertising agency Publicis on the threat of long-term AI disruption.
“For SAP, we grew wary that generative AI could eventually bypass traditional software layers or force a costly business model reset. Specifically, we view their seat-based model as being under pressure as AI agents automate tasks, potentially eroding core per-user revenue.
“Similarly, we exited exited Publicis despite strong organic growth. Our concern at the time centred on the vulnerability of the advertising agency model as GenAI empowers clients to insource creative work and automate media buying.”
The £631m investment trust, which hopes an inflow of money from EOT investors will narrow some of the size gap with £2.1bn Fidelity European (FEV), said the portfolio had risen a further 12.8% since the financial year-end, again ahead of its benchmark’s 8.8% gain.
The 3.4%-yielder intends to pay 5.44p in dividends this year, up 8.8%, with a first quarterly instalment of 1.36p paid this month.
Dhut said while global geopolitics were fraught and uncertainty over US trade policy weighed on sentiment, there were grounds for some optimism. “Inflation in the Eurozone remains close to the European Central Bank’s (ECB) target with a supportive policy backdrop. Germany has announced a €500bn infrastructure programme and the structural uplift in European defence spending underline a meaningful shift in the region’s investment outlook.”
Our view
James Carthew, head of investment company research at QuotedData, said: “This was another good set of results from JPMorgan European Growth and Income, extending its lead over its benchmark index. An 8.8% uplift in the dividend is welcome and the board is doing a good job of keeping the shares trading fairly close to asset value (currently a 1.6% discount). All of this bodes well as we await the publication of a circular by European Opportunities where shareholders in that trust have the chance to roll their investment into JEGI. It is the option I would choose.”
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