JPMorgan Euro Small Companies Trust Plc (LON:JESC) aims to generate long-term capital growth from a portfolio of high-quality, reasonably valued, small-cap European equities. While the European stock market, in keeping with global markets, has been more volatile year to date compared with the abnormally low levels of volatility in 2017, the managers believe that there is potential for further upside. They cite an improving European and global economy, low inflation and a benign interest rate environment, which is supportive for corporate earnings growth. JESC has a very strong investment track record, outperforming the EMIX Smaller Europe ex-UK index over the last one, three, five and 10 years. The trust currently offers a 1.7% dividend yield.
Investment strategy: Bottom-up stock selection
JESC’s managers screen the c 1,500-strong universe of European small-cap equities seeking high-quality companies, with good business momentum, that are trading on reasonable valuations. Potential investee companies are subject to rigorous fundamental analysis and meeting company managements is a key part of the investment process. One of the key themes in the portfolio is a focus on companies – across a variety of sectors – that are benefiting from technological change. The managers are unconstrained by the benchmark’s geographic and sector allocations. Gearing of up to 20% is permitted; at 9 July 2018, the trust was running a net cash position of 1.4%.
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