TR European Growth Trust (TRG) aims to deliver capital growth by investing in smaller and medium-sized companies in Europe (excluding the UK). It tends to own smaller companies, on average, than the majority of its peers and pursues a contrarian valuation driven approach which sees it more highly exposed to ‘value’ plays than others in the sector.
With a strong record of dividend growth, the trust offers a solid yield, and is insulated from the threat of dividend cuts by a large revenue reserve. Though well diversified, the trust’s high gearing and preference for smaller, often out-of-favour, companies has meant significant volatility for investors. Ollie Beckett has been running the portfolio since 2011, utilising a bottom-up approach to stock selection. The investment process differentiates the trust from others in the sector, as it involves assessing companies based on the stage of their life cycle as opposed to by sector or geography. Depending on where each company sits in its cycle, Ollie will assess different attributes, valuation metrics and sell signals to understand if it is intrinsically undervalued.
The trust is well diversified with close to 150 stocks, and the top ten holdings make up less than 20% of NAV. There is an emphasis towards small- and micro-cap companies relative to peers, with the average market cap in the portfolio £916m, in comparison to the AIC European Smaller Companies sector average of £1.69bn. Ollie pursues a contrarian approach, looking for undervalued companies which he believes are misunderstood by the market, and has been increasing his exposure to companies with leverage throughout the pandemic.
Typically, the trust has outperformed in rising markets but done little to protect capital during falling markets. This is primarily due to the type of company Ollie invests in, as well as the high levels of gearing employed (currently 11%). Over the past five years the trust has delivered NAV total returns of 32.4%, outperforming the benchmark but underperforming the AIC European Smaller Companies sector.
Currently the trust is trading at a discount of 16.4%, the widest in the sector.