EuropeAug 3 2017

European Assets lags sector despite Italian equities boost

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European Assets lags sector despite Italian equities boost

Strong performance Italian equities were behind improved returns for the £438m European Assets Investment Trust in the first half of the year, according to it results, released this morning (3 August).

However in the year to 30 June, the trust lagged its rivals, returning 30 per cent, compared with 32 per cent for the average trust in the AIC European Smaller Companies sector, according to data from FE Analytics.

The European Assets Investment Trust lost 2 per cent in 2016, when the average sector return was 5 per cent.

Fund manager Sam Gosh said the improvement on 2016 was due to a better outlook for European equities, thanks to “diminishing political risk” and “improved company profitability.”

Mr Gosh added: “Economically, the region appears to be in much better shape, with Germany approaching boom territory, France emerging from its prolonged stagnation, and Spain recovering strongly.

"The correlation between economics and stock market returns is not always as strong as is commonly perceived.

"However, the particular relevance for this point in the market cycle is that this economic growth is now being felt in company profits; both the full year and first quarter results seasons have seen meaningful improvements in expectations of profit growth.

"This profit growth is of course potentially only the start of a recovery in the health of the listed corporate sector in the region. In aggregate company earnings are, in contrast to the US for instance, still well behind historic levels, so by this measure at least, there is plenty of potential for a further recovery.”

Mr. Gosh said the trust’s returns were driven by Italian small cap equities, but he has been selling those investments as the share prices have risen.  

The fund manager said as the valuations of European small caps have risen, the gains have been concentrated on businesses that derive the greater part of revenue from exports.

Mr Gosh added he has started to focus the investments in his trust on domestically focused shares as, in his view, that is the part of the market that has been behind thus far.   

The trust paid dividends of 0.22p per share in January and May, with a further dividend to be paid in August (the dividend is quoted in Euro cents so the precise amount for sterling based investors depends on currency movements).

The European Assets Investment Trust trades at a premium to net assets of 0.9 per cent.