The European Investment Trust: Concentrating On Long-Term Value
Edison | Jun 14, 2016 12:01AM ET
The European Investment Trust (LON:EUTP) focuses on continental European stocks expected to deliver superior returns based on five-year earnings forecasts. Performance has weakened over the last 12 months on market volatility and outperformance of growth stocks. However, the manager is sticking to a disciplined, valuation-driven process; expensive names have been reduced and the concentration in core ideas increased. Moreover, the trust moved from net cash to net gearing in February, towards the recent market lows, when the average year five P/E fell to a cyclical low of 7.5x. Despite a widening of the discount back to historical averages, the share price total return has outperformed the benchmark over the last five years.
Investment strategy: Disciplined, valuation driven
Dale Robertson of Edinburgh Partners (EP), the manager of EUT, applies EP’s disciplined investment process based on fundamental long-term earnings analysis. EP’s research indicates that stock returns are correlated to inflation-adjusted, five-year earnings performance but not well correlated for shorter periods. Stocks are generally bought when the year five real P/E (Y5 P/E) is below 8.5x and sold when above 14x. The trust typically invests in 35-50 individual names, with sector and geographic exposures largely driven by bottom-up stock selection. The investment process tends to overweight stocks with ‘value’ characteristics, but this style has been out of favour over the last few years.
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The European Investment Trust Plc - Concentrating On Long-Term Value
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