Investment trust insider on discounts on European trusts – James Carthew: Grab the value in Europe before the discount players do
Political and economic uncertainty is piling up in Europe and that is creating investment opportunities, particularly among smaller company investment trusts.
A year ago, I wrote an article about Saba Capital’s dealings with European Opportunities Trust (EOT). At the time, EOT was putting together its 25% tender offer, which was taken up in full in January 2024, shrinking the trust by £221m.
Bloomberg’s shareholding data is not perfect – it suggests that Saba still has a 4% stake in the trust, but I think that is not the case. However, Bloomberg says that other discount hunters 1607, Allspring Global and City of London hold about 30%.
Since the tender, EOT has bought back another 9.3m shares, but the trust’s discount is still a bit wider than it should be at about 13%. What is needed is a turnaround in performance. However, Europe is out of favour with investors, and fund manager Alexander Darwall’s big bet on Novo Nordisk (12.7% of the portfolio at 30 November) has been a drag on returns over the past six months.
The valuation gap between the US and the rest of the world continues to expand and is starting to feel overstretched. The MSCI US index trades on about 27.5 times earnings, while equivalent indices for Asia ex-Japan, Japan and Europe ex-UK cluster around 15.5 times and the UK stands on a multiple of about 13.5.
The arguments for why the UK index is so lowly valued and why that should change have been well rehearsed, but in Europe the negatives have been piling up.
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