TR European Growth Trust Plc (LON:TRG) has enjoyed an exceptionally strong period of recent share price and NAV performance, posting gains of c 50% over 12 months to 30 April. While returns from all overseas investments have been boosted by the weakness of sterling since the UK’s Brexit referendum, TRG’s outperformance has been assisted by a focus on better-value cyclical stocks, and the decision of lead manager Ollie Beckett to increase gearing in the second half of 2016. The trust invests in European (ex-UK) smaller companies, with a particular focus on those at the lower end of the market cap spectrum, where both rewards and risks may be higher. Because of this, TRG has a longer stock list than peers. While the discount to NAV has narrowed somewhat, it remains at c 9% compared with an average of 0.7% for the investment company universe.
Investment strategy: Seeking undervalued growth
TRG’s managers, Ollie Beckett and Rory Stokes of Henderson Global Investors, hold a diversified portfolio of European small and mid-cap companies, with a bias to the smaller end of the market. The managers use value screens to narrow down the universe of c 1,300 companies, focusing on those with superior growth or recovery potential, whose under-appreciated prospects have led to misvaluation. Company meetings are a key part of understanding the quality of management and strategy, as well as identifying catalysts for rerating, and the managers meet or speak with hundreds of potential investment candidates each year.
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