An overweight to technology stocks helped European Smaller Companies Trust (ESCT) extend its outperformance in the first half of the year with AI winners outnumbering companies seen as “losers” in the race towards artificial intelligence.
Annual results show the £792m investment trust, its sector’s largest following a merger with European Assets last year, generated a 16.8% investment return in the year to 30 June, beating the MSCI Europe ex UK Small Cap index by 4.4%.
This was an improvement on the half-year results in February when the company reported a 7.7% underlying return in the six months to 31 December, just 0.6% ahead of the benchmark.
The annual result maintains ESCT’s outperformance under Janus Henderson fund managers Ollie Beckett, Rory Stokes and Julia Scheufler. Over five years the trust has generated a 37.7% total return on net assets against the MSCI benchmark’s 28.4%, while over a decade it made 235.7% versus the index’s 156.9%, the company said.
The managers said the second half of the trust’s financial year had brought very different challenges with AI euphoria followed by a sharp correction and the US-led war on Iran causing huge market volatility.
Among their “AI winners” was SUSS Microtechnology, a “substantial contributor to performance” after the German semiconductor equipment producer benefited from strong demand. Others included:
- Norway’s Smartoptics, a provider of high-speed fibre optic links to data centres;
- Germany’s PVA TePla, a maker of metrology machines used to inspect advanced chips;
- Aixtron, whose specialist equipment makes the power chips in data centres;
- ams-OSRAM whose laster and phonetics components help data move between chips and servers more efficiently;
- and PFISTERER, a German high voltage cable connection company.
Offsetting some of these, were “AI losers’ such as Swedish legal information services provider Karpov, German web hosting and cloud service provider IONOS, IT consultant Adesso and Spanish hotel booking platform HBX which the market viewed as vulnerable to disruption. The managers said they were monitoring the positions but believed the companies either had proprietary data, in-house AI tools and strong customer relationships that mitigated the threat from artificial intelligence.
Under the 5% dividend policy adopted after the merger with European Assets, ESCT paid 8.43p per share in quarterly dividends. For the current year to 30 June 2027, it is targeting 12.64p per share.
ESCT also returned £36.7m to shareholders buying back 16.8m shares as the board sought to keep the share price discount to a mid-single digit level. This was mostly successful with the gap between the share price and net asset value ranging from 5.1% to 10.4%.
Our view
Matthew Read, senior analyst at QuotedData, said: “These are welcome results for The European Smaller Companies Trust and a pleasing outcome following the absorption of European Assets, particularly against a volatile backdrop. The portfolio’s overweight exposure to technology has paid off, as has good stock selection among financials as inflation and interest-rate expectations have risen. Despite the strong performance, European smaller companies remain relatively unloved, while increased defence and infrastructure spending, particularly in Germany, and European technology companies’ role in the AI investment boom provide potentially helpful tailwinds.”
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