European Investment Trust: Improving Performance After New Management
Edison | Jun 06, 2017 08:12AM ET
European Investment Trust Plc(The) (LON:EUTP) aims to generate long-term capital growth from a diversified portfolio of European equities. Since August 2016, EUT has been managed by Craig Armour, who follows the disciplined Edinburgh Partners valuation-driven investment process, aiming to buy stocks that are trading on a five-year P/E multiple (Y5 P/E) of less than 11x. The manager is currently more cautious on the outlook for continental European equities as EUT’s portfolio Y5 P/E is towards the high end of its 7x to 11x long-term historical range. As a result, EUT is currently ungeared and Armour is not planning to increase cyclical exposure in the near term. Near-term investment performance has improved versus the peer group and the benchmark, and EUT has increased or maintained its ordinary annual dividends since 2009.
Investment strategy: Focus on valuation
EUT is managed following Edinburgh Partners’ disciplined fundamental, bottom-up investment process. This is based on in-house analysis showing that stock prices are correlated with inflation-adjusted five-year earnings performance, but stock price moves are more random over shorter time periods. Armour and his team determine five-year earnings estimates, seeking companies that are trading on a Y5 P/E of less than 11x. EUT is a concentrated portfolio of 35-45 stocks diversified by sector and geography, selected without reference to the benchmark FTSE All-World Europe ex-UK Index. Gearing of up to 20% of net assets is permitted; however, at end-April 2017, EUT had a net cash position of 1.3%.
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