JPMorgan European Discovery Trust plc
JPMorgan European Discovery Trust JEDT

JPMorgan European Discovery Trust JEDT share price, company news, analysis and interviews

JPMorgan European Discovery Trust plc (LON:JEDT) aims to provide capital growth from a diversified portfolio of smaller European companies (excluding the United Kingdom). As the emphasis is on capital growth rather than income, shareholders should expect the dividend to vary from year to year. The investment trust JEDT has the ability to use borrowing to gear the portfolio within the range of 20% net cash to 20% geared, in normal market conditions.

In the video below JP Morgan European Discovery Trust plc Francesco Conte presents a review at the AGM in July 2023. The video contains a detailed review of the investment performance of the trust, a summary of investment approach and recent activity and outlook.

Company Info

Website:
https://am.jpmorgan.com/gb/en/asset-management/per/products/jpmorgan-european-discovery-trust-plc-ordinary-shares-gb00bmts0z37

SEDOL BMTS0Z3
ISIN  GB00BMTS0Z37
Bloomberg  JEDT LN
Reuters JEDT.L
Asset class  Equity
Region  Europe
Share class currency  GBP
Share class inception  24/04/1990

Useful Documents

Portfolio Managers

JPMorgan European Discovery Trust plc considers financially material Environmental, Social and Governance (ESG) factors in investment analysis and investment decisions, with the goal of enhancing long-term, risk-adjusted financial returns.

Important Announcement

With effect from 15 June 2021, and update of the ticker on 17 June 2021, the name and ticker of the Company have changed to JPMorgan European Discovery Trust plc (JEDT from JESC). These changes better reflect the Company’s investment strategy and its portfolio. Some of the Company’s portfolio companies have market capitalisations of up to EUR8bn; as such the Board believes that the Company’s name did not accurately describe the portfolio holdings or the investment opportunities available to the Investment Managers. All other Company details remain the same, including the Company’s ISIN, SEDOL and LEI.

Share this page

Twitter
LinkedIn
Facebook
Email
WhatsApp
JPMorgan European Discovery Trust plc

JPMorgan European Discovery Trust JEDT share price

Fundamentals

52 Week High / Low

News

JPMorgan European Discovery Trust plc

European investment trust JEDT: 19% share price growth to quarter end Jan 2024

JPMorgan European Discovery Trust plc (LON:JEDT) has announced its January commentary.

JEDT’s share price and NAV rose 19.03% and 15.05% respectively on a cumulative basis to 31 January 2024

Month in review – As of 31/01/2024

  • The trust outperformed its benchmark over January.
  • Positive contributors to relative returns included stock selection in industrial engineering and stock selection and an overweight position in industrial support services.
  • Detractors included stock selection and an underweight position in industrial transportation and stock selection in technology hardware and equipment.
  • At the stock level, an overweight position in Kindred, a Swedish gambling company, outperformed after receiving a takeover offer from Francaise des Jeux.
  • An overweight position in SPIE, a French multi-technical services company, outperformed as the company continued to benefit from strong investments into electrification & energy efficiency.
  • Conversely, an overweight position in Forvia, a French auto parts supplier, underperformed as concerns emerged around their ability to pass on price increases while demand for autos seems to be slowing.
  • An overweight position in Melexis, a Belgian automotive chip designer, also underperformed as the inventories of chips have started to increase at auto original equipment manufacturers (OEMs), signaling a potential slowdown in demand.

Looking ahead – As of 31/01/2024

  • On top of the macroeconomic uncertainties, there are numerous political uncertainties arising out of the ongoing geopolitical tensions and the imminent national elections.
  • European equities trade on an extreme discount to US equities, a discount that has grown following strong 2023 technology-led gains in the US. This argument may not be new to prospective investors; however, the European equity market today can offer comparable levels of quality and growth potential.
  • While the short-term outlook remains uncertain, we believe European equities offer an attractive entry point to the long-term investor, and we remain focused on selecting companies with pricing power, strong balance sheets and the ability to grow significantly over the long term.

JPMorgan European Discovery Trust plc (LON:JEDT) is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.

Read More »
JPMorgan European Discovery Trust plc

JEDT investment trust’s top holding Spie SA rises steadily

JPMorgan European Discovery Trust plc (LON:JEDT) has announced their ten largest investments in % of total assets as at 31 December 2023:

SPIE 3.3%
KION GROUP AG 2.8%
Sanlorenzo 2.7%
SEB 2.6%
Elis 2.4%
BILFINGER 2.3%
De’Longhi Group 2.3%
Alten 2.2%
FUGRO 2.1%
MERLIN Properties 2.1%
Total 24.7%
Excludes Investments in Liquidity stocks

JPMorgan European Discovery Trust plc (LON:JEDT) is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.

Read More »
JPMorgan European Discovery Trust plc

JEDT 8.9% annual return proves a tonic to European equities investors

JPMorgan European Discovery Trust plc (LON:JEDT) has announced its December commentary.

JEDT investment trust’s share price rose 8.87% over the 12 months to the end of December 2023, delivering some much-needed capital growth to European equities investors in 2023. 

Month in review – As of 31/12/2023

  • The trust underperformed its benchmark over December.
  • Positive contributors to relative returns included stock selection and an overweight position in the construction & materials and leisure goods sectors.
  • Detractors included stock selection in banks and medical equipment and services.
  • At the stock level, our overweight position in Bravida, a Swedish multi-technical installation company, outperformed as lower interest rates could lead to an improvement for its new-build business.
  • An overweight position in Kion, a German provider of forklift trucks and supply-chain solutions, also outperformed on the back of the wider market rally.
  • Our overweight positions in BPER Banca, an Italian banking group, and Banco de Sabadell, a Spanish banking group, underperformed as investors started pricing additional interest-rate cuts from the European Central Bank (ECB).

Looking ahead – As of 31/12/2023

  • The risks to the European economy have certainly not disappeared. On top of the macroeconomic uncertainties, there are numerous political uncertainties, arising out of ongoing geopolitical tensions and imminent national elections, that are hard to forecast at this stage.
  • Economic growth looks set to moderate in 2024. Cooling labour markets and tighter lending standards could limit growth in consumption, while the lagged effects of monetary tightening may challenge business spending. However, as inflation moderates the market will focus on when central banks will start to cut interest rates.

JPMorgan European Discovery Trust plc (LON:JEDT) is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.

Read More »
JPMorgan European Discovery Trust plc

Top Ten Investments for JPMorgan European Discovery Trust, LON:JEDT

JPMorgan European Discovery Trust plc (LON:JEDT) has announced their ten largest investments in % of total assets as at 31 December 2023:

SPIE 3.0%
SEB 2.6%
Sanlorenzo 2.6%
AAK 2.4%
De’Longhi Group 2.3%
Elis 2.2%
KION GROUP AG 2.2%
MERLIN Properties 2.2%
TAG Immobilien AG 2.2%
AIXTRON SE 2.1%
Total 24.0%
Excludes Investments in Liquidity stocks

JPMorgan European Discovery Trust plc (LON:JEDT) is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.

Read More »
JPMorgan European Discovery Trust plc

JPMorgan European Discovery Trust interim dividend of 2.5p per share declared (LON:JEDT)

JPMorgan European Discovery Trust plc (LON:JEDT) has announced that an interim dividend of 2.5 pence per share will be paid on 5th February 2024 to shareholders on the register at the close of business on 29th December 2023 (ex-dividend date 28th December 2023).

The Board will continue to keep the level of dividends received, and expected to be received from portfolio companies, under review and take into account the level of the Company’s revenue reserves when determining the final dividend for the year in 2024.

JPMorgan European Discovery Trust plc (LON:JEDT) is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.

Read More »
JPMorgan European Discovery Trust plc

JEDT recent gains show better positioning to capture upside in half year report

JPMorgan European Discovery Trust plc (LON:JEDT), the FTSE 250 trust investing in European smaller companies, announces its interim results for the six-month period ended 30 September 2023

European small caps underperformed large caps during the period, as small caps are particularly sensitive to ‘risk off’ conditions. The Company was not immune to these conditions and the portfolio underperformed its benchmark. However, the Manager has made important enhancements to the portfolio selection process with improved risk management. There has been improved performance over recent months as the portfolio adjustments begin to pay off. 

Financial highlights for the Reporting Period include:

·      NAV per Ordinary Share of 434.5 pence (as at 30 September 2023) down 12.8% from 31 March 2023

o  European small caps underperformed large caps with the benchmark index, MSCI Europe (ex UK) Small Cap Index, declining 5.7% v large cap MSCI Europe (ex UK) NR Index, which declined 2.0%

·      Shareholder total return of -10.7%, better than reported return on NAV of -11.4% with the Company’s discount narrowing from -15.1% to -14.8%

·      Interim dividend increased to 2.5 p per share (2022: 1.2p)

o  To be paid on 5 February 2024 to shareholders on the register as at 29 December 2023

·      50,000 shares were repurchased over the period and a further 3,384,539 shares have been repurchased since the period end. The share price discount has narrowed to 11.3%, as at time of writing.

Operational highlights for the Reporting Period include:

·      Enhancements to the investment process and risk management, with increased exposure to Consumer Discretionary and Financials sectors

o  Added Technogym, manufacturer of premium gym equipment, De’Longhi, the leading producer of espresso machines for households and businesses, French reinsurer SCOR and Italian bank, BPER Banca

·      Arun Sarwal joined the Board as an independent non-executive director.

o  Arun has extensive experience developing technology businesses and working in financial services, across a range of industry segments and was previously CEO of Fund Communication Solutions at Broadridge

Outlook:

·      The Company’s performance has improved over recent months as portfolio adjustments begin to pay off

·      Combination of low valuations of European small caps and possible worldwide central bank easing should be positive for the Company.

CHAIRMAN’S STATEMENT

Investment Performance

Investment companies have had a well-publicised ‘tough year’, with high inflation and global macro-uncertainty taking its toll on performance across many asset classes. Against this backdrop, the Trust underperformed its benchmark over the six months to end of September 2023. During the half year to 30th September 2023, the Company recorded a total return on net assets of -11.4%, with the Company’s benchmark index, the MSCI Europe (ex UK) Small Cap NR Index, returning -5.7% over the same period. The total return to shareholders was -10.7%, slightly better than the reported return on NAV due moderate narrowing of the discount at which the Company’s shares traded, from -15.1% to -14.8% over the six months.

The Company’s longer-term performance has been mixed. Over the past five years, the total return on net assets was 2.0%, compared the benchmark total return of 20.1%. However, over the past ten years, the total return of 119.8% has been high in absolute terms and close to the benchmark return of 124.7%. 

The Investment Managers’ Report that follows provides a review of markets, and more detail on the performance drivers within the portfolio, along with some discussion of the market outlook.

Revenue and Dividends

Gross revenue return for the six months to 30th September 2023 was higher than the corresponding period in 2022, at 12.62 pence per share (2022: 12.32 pence). The Board has decided the interim dividend of 2.5 pence (2022: 1.2 pence) per share which will be paid on 5th February 2024 to shareholders on the register as at 29th December 2023 (the ex-dividend date will be 28th December 2023). The Board will keep this matter under review and take into account the income received and the level of the Company’s revenue reserves when determining the final dividend for the year in 2024.

Discount Management and Share Repurchases

The Board continues to monitor closely the level of the discount and believes that its ability to repurchase shares to minimise the short-term volatility and the absolute level of the discount is of prime importance. A total of 50,000 shares were repurchased in the six months to 30th September 2023. A further 3,384,539 shares have been repurchased since the period end. At the time of writing, the share price discount had narrowed to 11.3%.

The Board

In line with the Board’s succession planning and the retirement of Ashok Gupta at the 2023 Annual General meeting, the Board undertook a search to identify a new Director. Following the successful conclusion of this search, and as announced on 9th May 2023, Arun Sarwal was appointed as an independent non-executive director with effect from the conclusion of the Annual General Meeting 2023. Arun has extensive experience developing technology businesses and working in financial services, across a range of industry segments including commercial & investment banking, and asset and wealth management across the globe. Some of his previous roles include his position as the CEO of Fund Communication Solutions at Broadridge.

Environmental, Social and Governance (‘ESG’)

As highlighted in the 2023 Annual Report, the Board has continued to engage with the Manager on the integration of ESG factors into its investment process. These issues are considered at every stage of the investment decision. The Board shares the Investment Managers’ view of the significance of ESG factors, both when making initial investment decisions and during ongoing engagement with investee companies throughout the period of the investment. For more details, please refer to pages 23 to 26 of the 2023 Annual Report, which can be found on the Company’s website at: www.jpmeuropeandiscovery.co.uk.

TCFD

JPMorgan Asset Management (JPMAM) published its first UK Task Force on Climate-related Financial Disclosures (‘TCFD’) Report for the Company in respect of the year ended 31 December 2022 on 30th June 2023. The report is designed to provide investors with transparency into the portfolio’s climate-related risks and opportunities according to the Financial Conduct Authority (FCA) Environmental, Social and Governance (ESG) Sourcebook and the Task Force on Climate related Financial Disclosures (TCFD) Recommendations. The report is available on the Company’s website under the ESG documents section www.jpmeuropeandiscovery.co.uk.

Outlook

Higher interest rates are beginning to bite and economic activity seems to be slowing, which is likely to put earnings and share prices under pressure as we head into 2024. However, there are reasons to be optimistic; rates are at, or near, their peaks in the major developed economies and may begin to fall next year.

The Manager has made changes to the investment process and has enhanced risk management to protect the portfolio on the downside in volatile markets and better position it to capture the upside. Relative performance has improved in recent months, suggesting that these recent portfolio changes are beginning to pay off. The Board welcomes the Managers’ ongoing efforts to further enhance returns by taking advantage of current low valuations to acquire other interesting hidden gems, at attractive prices.

History shows that while European markets have been through challenging periods, performance has subsequently rebounded strongly as these challenges abate. European small cap companies tend to outperform as the broader market rallies. Looking ahead, any signs that central banks are considering lower interest rates should provide a significant boost to investor confidence and equity markets. If history is any guide, European small caps in general, and your Company in particular, should do even better. On this basis, the Board is optimistic about the Company’s prospects over 2024 and beyond.

Marc van Gelder
Chairman

13th December 2023

INVESTMENT MANAGERS’ REPORT

Review

Investor sentiment remained risk adverse as government bond yields continued to move higher. While inflationary pressures began to ease, concerns around unsustainably large government fiscal deficits grew. European small caps underperformed large caps, as small caps are particularly sensitive to such ‘risk off’ conditions.

The benchmark MSCI Europe (ex UK) Small Cap NR Index fell by 5.7 per cent over the review period versus the large cap MSCI Europe (ex UK) NR Index that fell 2.0 per cent.

Portfolio performance

The portfolio’s NAV declined by 11.4 per cent, underperforming its benchmark by 5.7 percentage points, as the Company’s investment process tends to struggle during periods of high volatility. A detailed overview of the Company’s investment process follows this report.

Contributors to performance included French professional installations company, Spie, due to continued high demand driven by the energy transition towards electrification. Scout24, the leading German real estate digital classifieds platform, contributed due to strong growth even as the real estate market remained under pressure. Dutch engineering services provider, Arcadis, outperformed due to increasing demand driven by climate change, the energy transition, and urbanisation.

Over the period, detractors from performance included Bravida, the Swedish commercial building installation company. Its share price came under pressure as cost inflation depressed margins, even though orders held up well. Melexis, a Belgium provider of semiconductor chips primarily for the automotive end market, underperformed due to concerns that high inventories at their customers could temporarily depress demand. Swedish engineering services provider, AFRY, detracted as weaker demand impacted their utilisation rate which depressed margins.

Portfolio changes

During the year, we have made some important enhancements to our process and risk management in the portfolio, seeking to minimise downside risk during periods of volatility and capture upside risk when volatility reduces. The changes made have led to improved portfolio construction and include an increase in the number of holdings, thereby reducing thematic and sector concentration during periods of global stress.

Among other things, we increased the portfolio’s exposure to the Consumer Discretionary sector. Valuations are attractive, inventory levels are normalising, and there is potential for real wage growth as wage increases feed through and inflation moderates. Falling input costs are a further tailwind to earnings. For instance, we added Technogym, the Italian manufacturer of premium gym equipment, and De’Longhi, a leading producer of espresso machines for households and businesses. We increased the portfolio’s Financials holdings, including via French reinsurer, Scor, as operational momentum began to improve following a business restructuring, and Italian bank, BPER Banca, due to its very attractive valuation and better-than-expected profit growth.

To fund these purchases, we reduced our exposure to construction related industrials, as high bond yields are adversely impacting demand for new construction, and cost inflation is putting pressure on margins. For example, we sold Swiss listed Georg Fischer and Dutch Aalberts. We also sold or reduced companies whose market caps had risen due to outperformance to the point where they were no longer small caps. These sales included D’ieteren, a Belgium holding company focused primarily on automotive related end markets, and Prysmian, an Italian manufacturer of high voltage cables which are vital to support the transition towards renewable energy.

As a result of these changes Consumer Discretionary became the portfolio’s largest sector overweight and Financials became the second largest overweight. Healthcare and Real Estate remained the largest underweights due to a combination of poor momentum and expensive valuations. France and Italy remained the two largest country overweights, while Norway and Switzerland remained the two most significant underweights.

At the end of September 2023, portfolio gearing was 3.8%.

Outlook

The long-anticipated global slowdown appears to have finally arrived, and with it the likelihood that central bank rates have peaked. This makes the near-term outlook for equities very hard to anticipate. On the one hand, company earnings are slowing, on the other, the headwinds created by higher rates are starting to show signs of abating. We suspect that earnings will dominate in the near term, keeping equities under pressure, while expectations of lower interest rates may play an increasingly supportive role next year.

Top-down macroeconomic uncertainty has been dominating the performance of stock markets for some time. As a result we have transitioned towards a more diversified portfolio comprising companies that are benefitting from the current high interest rate environment, while adding attractively valued companies that should do well as interest rates begin to fall. While this is a difficult balancing act, the Trust’s performance has improved over recent months as portfolio adjustments are beginning to pay off. Looking to next year, the combination of extremely low valuations for European small caps, and possible central bank easing around the world, should be very positive for markets in general and even more so for our asset class.

Francesco Conte
Edward Greaves

Investment Managers
13th December 2023

JPMorgan European Discovery Trust plc (LON:JEDT) is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.

Read More »
JPMorgan European Discovery Trust plc

European small cap investments for JPMorgan European Discovery Trust

JPMorgan European Discovery Trust plc (LON:JEDT) has announced their ten largest investments in % of total assets as at 30 November 2023:

SPIE 2.6%
Sanlorenzo 2.5%
SEB 2.5%
Vopak 2.2%
TechnoGYM 2.1%
AAK 2.1%
MERLIN Properties 2.1%
Elis 2.0%
Banco Sabadell 2.0%
BPER banca 2.0%
Total 22.1%
Excludes Investments in Liquidity stocks

JPMorgan European Discovery Trust plc (LON:JEDT) is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.

Read More »

Interviews

Francesco Conte reviews JP Morgan European Discovery Trust (JEDT) AGM 2023

JP Morgan European Discovery Trust plc (LON:JEDT) Co-Portfolio Manager and Managing Director, Francesco Conte presents a review of the European investment trust at the AGM in July 2023. The video contains a detailed review of the investment performance of the trust, a summary of investment approach and recent activity and outlook.

https://vimeo.com/891113352

JPMorgan European Discovery Trust plc (LON:JEDT) is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.

Read More »
JPMorgan European Discovery Trust plc

Europe Investment fund: JEDT manager assesses European smaller companies

DirectorsTalk interviewed Edward Greaves, Portfolio Manager for JPMorgan European Discovery Trust plc (LON: JEDT) to discuss the investment case for European smaller companies, current valuations in the sector as well as long-term themes within the portfolio for this Europe investment fund.

Q1. Edward, why should investors look at European smaller companies now?

Well, in my view, we mustn’t lose track of the bigger picture, we shouldn’t forget that European small caps have been one of the best performing asset classes for decades and this surprises many people.

Europe Investment fund

This chart shows the long term performance of the investment trust’s benchmark versus a number of global equity indices since 2000. The benchmark is in blue and you can see that it has outperformed all of the other major indices over this period and we show reinvested dividends in pound sterling.

This is due to the superior growth of European small caps. Small caps are more entrepreneurial, more dynamic, they’re more nimble, they’re able to very quickly recognise and exploit new themes or trends.

At the same time, current valuations are very attractive. The price to book ratio of our benchmark is really low – it’s approaching the levels seen at the peak of the global financial crisis and the Eurozone sovereign debt crisis. This is similar when you look at the price to book ratio of European small caps versus large caps.

Q2. Can you put the performance of European small caps in a historical context?

The evidence shows small caps tend to underperform during a global crisis and this is when risk premiums increase. At this point, central banks step in to support the economy and small caps stage rapid recoveries. This whole process was very much accelerated through COVID-19 when central banks stepped in really quickly and small caps actually outperformed for the year.

Year-to-date, small caps have underperformed[1] significantly versus large caps but at the same time, forward economic indicators are now very very poor, approaching levels where central banks have stepped up support historically.

As soon as sentiment turns more positive, I would expect that small caps would stage a very good rally especially given the long-term outperformance of the asset class and the depressed valuations that we see currently.

Q3. Can you remind investors of the investment trust’s investment process.

Of course. We look to uncover hidden gems before the wider investing community does and many of the small caps that we have invested in have gone on to become large caps or have been acquired by larger companies.

Our investment strategy focusses on three characteristics: value, quality and momentum. So, just to take each of these in turn.

  • Value – We really focus on free cash flow yield because we believe this is the highest quality valuation metric. We think cash is king, cash is needed for investments and cash is needed for dividends. We look for earnings recovery potential so for example, catalysts and we want some intrinsic quality, we don’t want to be investing in price taking commodities as these often turn out to be value traps.
  • Quality – We want companies that are market leaders in niches, we want high pricing power, low capex requirements so in other words, high return on invested capital. We’re looking for very strong balance sheets and importantly, we want management teams with proven track records and efficient capital allocation. We meet hundreds of companies every year and the CEO’s/CFO’s are often the company founders themselves and this gives us a clearer understanding of their capital allocation decision process and management tools. We believe this is an extremely important part of the investment process.
  • Momentum – We’re looking for companies where we see future earnings potential not reflected in expectations. This could be due to the structural growth of the end markets for example, aging populations, it could be that the company has a disruptive technology that’s gaining market share or it could be companies that operate in fragmented markets and have a track record of successful bolt-on acquisitions, this allows them to consolidate the market.

Importantly, it’s difficult to find companies that look great for all three characteristics so we look for companies that score well for at least two of these and we ensure that the overall portfolio is bias towards all three of them, this ensures we have a balanced portfolio. We’ve got both very exciting growth companies and we’ve got attractively valued companies with strong earnings recovery potential.

  • Can you highlight some of the themes that emerge from your investment strategy?

We have a big exposure to renewable energy, electrification, and environmental protection via companies such as:

  • Spie, which is an installation company heavily exposed to the energy transition theme,
  • Erg, which is a renewable energy generation company,
  • Nexans, which is a global leader in high voltage cables which are vital to connecting renewable energy to the grid and upgrading the grid itself to cope with more volatile supply and demand,
  • Arcadis, which is an engineering consultant focussed on buildings, infrastructure, environment, and water.

We also have exposure to leisure activities after COVID lockdowns have ended via companies such as Kinepolis which is an exceptionally well run cinema chain and importantly, has a very strong balance sheet.

We have many companies exposed to technological disruption such as:

  • Melexis which is a beneficiary of every-growing semi-conductor content for cars, and this should support continued double-digit growth going forward,
  • Reply is an IT consultant focussed on themes such as big data, artificial intelligence and cyber security which all companies have to invest in, regardless of the sector they operate in,
  • Medtech diagnostics company, DiaSorin, which is benefitting from aging populations and the growing importance of diagnostics testing.

From this, you can see another benefit of small cap investing which is the ability to get pure exposure to many different, exciting, new growth themes.

So, just to summarise, whilst the short term economic outlook is very uncertain, we like to focus on the fact that European small caps as an asset class has a great long-term track record, it’s very cheap versus history and this trust has a very experience management team and a disciplined investment process.

JPMorgan European Discovery Trust plc (LON:JEDT) aims to provide capital growth from a diversified portfolio of smaller European companies (excluding the United Kingdom). 

For more information, please visit the JPMorgan European Discovery Trust plc website: https://am.jpmorgan.com/gb/en/asset-anagement/per/products/jpmorgan-european-discovery-trust-plc-ordinary-shares-gb00bmts0z37

Important Information

Investment objectives: The Company aims to provide capital growth from a diversified portfolio of smaller European companies (excluding the United Kingdom). As the emphasis is on capital growth rather than income, shareholders should expect the dividend to vary from year to year. The Company has the ability to use borrowing to gear the portfolio within the range of 20% net cash to 20% geared, in normal market conditions.

Key Risks: Exchange rate changes may cause the value of underlying overseas investments to go down as well as up. External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds and income could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions. This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down. This Company invests in smaller companies which may increase its risk profile. The share price may trade at a discount to the Net Asset Value of the Company.

Opinions, estimates, forecasts, projections and statements of financial market trends are based on market conditions at the date of the publication, constitute our judgment and are subject to change without notice. There can be no guarantee they will be met.


[1] Source: J.P. Morgan Asset Management, Bloomberg. As of September 2022. Before 2022, the comparison was between EMIX smaller European Companies (ex UK) Index vs. MSCI Europe (ex UK) Index, and since then, MSCI Europe Small Cap (ex UK) Index vs MSCI Europe (ex UK) Index. All indices in GBP and include reinvested dividends. Indices do not include fees or operating expenses and are not available for actual investment. The indices used are based on data availability and changes to internal system’s data source.

Risk Indicator

This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.

Past performance is not a reliable indicator of current and future results.

Material ID: 091o231601163706

Read More »

Question & Answers

JPMorgan European Discovery Trust plc

Europe Investment fund: JEDT manager assesses European smaller companies

DirectorsTalk interviewed Edward Greaves, Portfolio Manager for JPMorgan European Discovery Trust plc (LON: JEDT) to discuss the investment case for European smaller companies, current valuations in the sector as well as long-term themes within the portfolio for this Europe investment fund.

Q1. Edward, why should investors look at European smaller companies now?

Well, in my view, we mustn’t lose track of the bigger picture, we shouldn’t forget that European small caps have been one of the best performing asset classes for decades and this surprises many people.

Europe Investment fund

This chart shows the long term performance of the investment trust’s benchmark versus a number of global equity indices since 2000. The benchmark is in blue and you can see that it has outperformed all of the other major indices over this period and we show reinvested dividends in pound sterling.

This is due to the superior growth of European small caps. Small caps are more entrepreneurial, more dynamic, they’re more nimble, they’re able to very quickly recognise and exploit new themes or trends.

At the same time, current valuations are very attractive. The price to book ratio of our benchmark is really low – it’s approaching the levels seen at the peak of the global financial crisis and the Eurozone sovereign debt crisis. This is similar when you look at the price to book ratio of European small caps versus large caps.

Q2. Can you put the performance of European small caps in a historical context?

The evidence shows small caps tend to underperform during a global crisis and this is when risk premiums increase. At this point, central banks step in to support the economy and small caps stage rapid recoveries. This whole process was very much accelerated through COVID-19 when central banks stepped in really quickly and small caps actually outperformed for the year.

Year-to-date, small caps have underperformed[1] significantly versus large caps but at the same time, forward economic indicators are now very very poor, approaching levels where central banks have stepped up support historically.

As soon as sentiment turns more positive, I would expect that small caps would stage a very good rally especially given the long-term outperformance of the asset class and the depressed valuations that we see currently.

Q3. Can you remind investors of the investment trust’s investment process.

Of course. We look to uncover hidden gems before the wider investing community does and many of the small caps that we have invested in have gone on to become large caps or have been acquired by larger companies.

Our investment strategy focusses on three characteristics: value, quality and momentum. So, just to take each of these in turn.

  • Value – We really focus on free cash flow yield because we believe this is the highest quality valuation metric. We think cash is king, cash is needed for investments and cash is needed for dividends. We look for earnings recovery potential so for example, catalysts and we want some intrinsic quality, we don’t want to be investing in price taking commodities as these often turn out to be value traps.
  • Quality – We want companies that are market leaders in niches, we want high pricing power, low capex requirements so in other words, high return on invested capital. We’re looking for very strong balance sheets and importantly, we want management teams with proven track records and efficient capital allocation. We meet hundreds of companies every year and the CEO’s/CFO’s are often the company founders themselves and this gives us a clearer understanding of their capital allocation decision process and management tools. We believe this is an extremely important part of the investment process.
  • Momentum – We’re looking for companies where we see future earnings potential not reflected in expectations. This could be due to the structural growth of the end markets for example, aging populations, it could be that the company has a disruptive technology that’s gaining market share or it could be companies that operate in fragmented markets and have a track record of successful bolt-on acquisitions, this allows them to consolidate the market.

Importantly, it’s difficult to find companies that look great for all three characteristics so we look for companies that score well for at least two of these and we ensure that the overall portfolio is bias towards all three of them, this ensures we have a balanced portfolio. We’ve got both very exciting growth companies and we’ve got attractively valued companies with strong earnings recovery potential.

  • Can you highlight some of the themes that emerge from your investment strategy?

We have a big exposure to renewable energy, electrification, and environmental protection via companies such as:

  • Spie, which is an installation company heavily exposed to the energy transition theme,
  • Erg, which is a renewable energy generation company,
  • Nexans, which is a global leader in high voltage cables which are vital to connecting renewable energy to the grid and upgrading the grid itself to cope with more volatile supply and demand,
  • Arcadis, which is an engineering consultant focussed on buildings, infrastructure, environment, and water.

We also have exposure to leisure activities after COVID lockdowns have ended via companies such as Kinepolis which is an exceptionally well run cinema chain and importantly, has a very strong balance sheet.

We have many companies exposed to technological disruption such as:

  • Melexis which is a beneficiary of every-growing semi-conductor content for cars, and this should support continued double-digit growth going forward,
  • Reply is an IT consultant focussed on themes such as big data, artificial intelligence and cyber security which all companies have to invest in, regardless of the sector they operate in,
  • Medtech diagnostics company, DiaSorin, which is benefitting from aging populations and the growing importance of diagnostics testing.

From this, you can see another benefit of small cap investing which is the ability to get pure exposure to many different, exciting, new growth themes.

So, just to summarise, whilst the short term economic outlook is very uncertain, we like to focus on the fact that European small caps as an asset class has a great long-term track record, it’s very cheap versus history and this trust has a very experience management team and a disciplined investment process.

JPMorgan European Discovery Trust plc (LON:JEDT) aims to provide capital growth from a diversified portfolio of smaller European companies (excluding the United Kingdom). 

For more information, please visit the JPMorgan European Discovery Trust plc website: https://am.jpmorgan.com/gb/en/asset-anagement/per/products/jpmorgan-european-discovery-trust-plc-ordinary-shares-gb00bmts0z37

Important Information

Investment objectives: The Company aims to provide capital growth from a diversified portfolio of smaller European companies (excluding the United Kingdom). As the emphasis is on capital growth rather than income, shareholders should expect the dividend to vary from year to year. The Company has the ability to use borrowing to gear the portfolio within the range of 20% net cash to 20% geared, in normal market conditions.

Key Risks: Exchange rate changes may cause the value of underlying overseas investments to go down as well as up. External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds and income could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions. This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down. This Company invests in smaller companies which may increase its risk profile. The share price may trade at a discount to the Net Asset Value of the Company.

Opinions, estimates, forecasts, projections and statements of financial market trends are based on market conditions at the date of the publication, constitute our judgment and are subject to change without notice. There can be no guarantee they will be met.


[1] Source: J.P. Morgan Asset Management, Bloomberg. As of September 2022. Before 2022, the comparison was between EMIX smaller European Companies (ex UK) Index vs. MSCI Europe (ex UK) Index, and since then, MSCI Europe Small Cap (ex UK) Index vs MSCI Europe (ex UK) Index. All indices in GBP and include reinvested dividends. Indices do not include fees or operating expenses and are not available for actual investment. The indices used are based on data availability and changes to internal system’s data source.

Risk Indicator

This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.

Past performance is not a reliable indicator of current and future results.

Material ID: 091o231601163706

Read More »

Analyst Notes & Comments

More Information

Latest JPMorgan European Discovery Trust JEDT News

Interviews

Questions & Answers

Broker Notes & Comments

JPMorgan European Discovery Trust JEDT share price

Fundamentals

Share this page

Twitter
LinkedIn
Facebook
Email
WhatsApp

Data policy – All information should be used for indicative purposes only. You should independently check data before making any investment decision and or seek professional advice. DirectorsTalk cannot guarantee that the data is accurate or complete, and accepts no responsibility for how it may be used.