Investment trust insider on Montanaro European – James Carthew: I missed Montanaro European effect
One area where my portfolio is a bit light is in Europe, particularly European small companies, and this has been a mistake over the past few years. The standout winner across those two sectors for some time now has been Montanaro European Smaller Companies (MTE), the £350m market trust managed by George Cooke. He is supported by what is probably the largest team of analysts focused on European smaller companies including a wide range of nationalities.
A focus on growth, quality and sustainability has helped steer Montanaro European through the pandemic but has also served it well over the long term. An investment in the trust 10 years ago would have made you 18% a year or about 420%% overall. That’s quite a bit ahead of its nearest competitors – TR European (TRG) and BlackRock Greater European (BRGE).
I am a believer of the ‘small cap’ effect – smaller companies are generally nimbler, more innovative and just have greater growth potential than large companies. However, not every small company will succeed, and the universe of small caps includes a few companies that used to be large caps. Having a skilled stock picker working on your behalf is essential in these sectors.
The depth of the research team supporting Cooke is important in this market. Even pre-Mifid II, analyst coverage at the smaller end of the market scale was poor. The situation has deteriorated since the introduction of the European regulation that intensified the squeeze on independent equity researchers, and that means that there are potentially more stocks that are mispriced.
The focus on quality means identifying companies that are profitable, have solid, defensible business models, strong balance sheets and good management. Europe may be pigeonholed as a mature, low-growth region but it contains many world-leading or potentially world-leading growth stocks. There are parallels here to the growth-focused Japanese trusts.
I think that one of the key differentiators of the two Montanaro funds is… read more here