FOLLOW
THE
LEADER
Will Japan and Europe replicate the
performance of the US market when
they join it in stepping off the QE
treadmill? Adam Lewis finds out
T
HE WEAKNESS OF STERLING
meant 2016 was a strong year for
investment trusts with an
overseas focus. AIC North
America, Europe and Japan were
no exception, with each one generating
returns of well over 30 per cent last year.
For the US, this marks quite a turnaround
from its previous appearance in a Trustnet
Magazine sector focus, published in June
2015. Back then the strong dollar caused it to
languish behind its European and Japanese
peers, which were also being buoyed by low
interest rates and large scale quantitative
easing programmes.
Two years on, with interest rates rising across
the globe and sterling on the up, what are the
prospects for these sectors today?
PERFORMANCE OF AIC SECTORS
1yr (%) 3yr (%) 5yr (%) 10yr (%)
AIC Europe 36.56 43.84 155.23 122.84
AIC Japan 34.02 82.75 181.26 139.16
AIC North America 36.07 42.98 80.4 160.6
Source: FE Analytics
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trustnetdirect.com
EUROPE
EUROPE IS THE BEST-
PERFORMING OF THESE THREE
SECTORS over the past 12 months.
Its eight funds are up by an average
of 36.56 per cent over one year and
have returned 43.84 and 155.23 per
cent over the past three and five.
Adam Carruthers, a collectives
analyst at Charles Stanley, says this
performance has been driven by the
fall in sterling versus the euro and
the flow of assets out of the US and
into Europe.
He adds that a lot of money had
been sitting on the sidelines in the
run-up to the Dutch and French
elections.
“Once the risk went away
following the elections, many asset
allocators took money out of the
US, which is expensive, and put it
into Europe. This pent up demand
has narrowed discounts in the
sector, with the average falling
from 16 per cent just after Brexit,
to 6 per cent today.”
Topping the rankings over one
year, with a 46.75 per cent return,
trustnetdirect.com
is John Bennett’s Henderson
European Focus trust. It also tops
the five-year rankings with a gain
of 215.12 per cent.
“Bennett has developed a strong
long-term performance record
with Henderson European Focus
and we rate him and Henderson’s
well-resourced pan European
equity team highly,” says Innes
Urquhart, a research analyst at
Winterflood Investment Trusts.
“He also makes good use of
the investment trust structure
through his allocation to small
and mid-cap companies and the
use of gearing.”
Carruthers says an environment
of negative interest rates and a
European Central Bank that is
reluctant to halt QE have been
supportive of growth investing.
One manager in particular who
has benefited from this is Vincent
Devlin, who runs BlackRock
Greater Europe.
On the opposite end of the scale
is The European Investment Trust,
run by Edinburgh Partners. With
growth outperforming the value
style favoured by this trust since
the financial crisis, it is still on a
13 per cent discount, although
this has narrowed from 19 per
cent.
“While both trusts have different
styles, each has done well over the
past 12 months,” says Carruthers.
PROFILE
THE EUROPEAN
INVESTMENT TRUST
Miton’s Nick Greenwood describes
the European Investment Trust as
a potential turnaround story. Craig
Armour took charge in August
last year after the departure of
Dale Robertson. He is not expected
to change the trust’s valuation
approach, given this is established
across the group, even though this
has held back performance in recent
years. “In the past it has tended to be
overlooked and a bit forgotten,” says
Greenwood.
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