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The European trusts on the biggest discounts relative to their recent history

By Tom Aylott, Reporter Trustnet, 2 November 2022:

Many trusts have been struck by soaring inflation and tightening monetary policies this year, but those investing in European equities have been particularly battered.

The war in Ukraine and lost gas imports from Russia have compounded to create a challenging market environment for European investors.

As a result, trusts in the IT Europe and IT European Smaller Companies have dropped to an average discount of 14%.

Here, Trustnet looks at the European trusts on the biggest discount to their five-year average and asks fund pickers where the best bargains lie.

James Carthew, head of investment companies at QuotedData, said that he was surprised by the poor performance of quality trusts such as Montanaro European Smaller.

These types of trusts are usually resilient to market drawdowns because they avoid investing in overly indebted companies, but Montanaro European Smaller had the biggest discount to its five-year average on the list.

It is trading 9.4 percentage points cheaper than it has over the past five years after it fell 46.9% since the start of the year.

However, Carthew pointed out that Baillie Gifford European Growth was the worst performer of both sectors over the past year – growth stocks typically outperform smaller companies, but its growth bias has been a damaging trait. It dropped 47.7% in the past 12 months as markets rotate away from growth and into value.

The trust is trading 6.9 percentage points below its five-year average and is unlikely to improve until monetary policy loosens, according to Carthew.

He said: “We may need to see clear evidence that inflation is rolling over so that expectations of falling interest rates start to come through before it recovers. For now though the trend is still toward higher rates.”

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