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European offers 10% tender to investors seeking exit after Baillie Gifford takes over

28 November 2019

European investment trust will give shareholders a chance to sell some of their holdings after Baillie Gifford becomes its new fund manager tomorrow.

European (EUT ) investment trust will give shareholders a chance to sell some of their holdings after Baillie Gifford becomes its new fund manager tomorrow.

The £345 million investment trust, which last month fired Edinburgh Partners for a poor 10-year performance, is proposing a tender offer to buy back up to 10% of its ordinary shares at a 2% discount to their net asset value (NAV).

EUT served notice on Edinburgh Partners on 10 October, since when its discount has come in slightly from just over 10% to under 9%. This leaves scope for a decent uplift for those investors who use the tender offer.

The tender offer is open to all shareholders but it is likely to be taken up most enthusiastically by EUT’s largest investors, Wells Capital Management, 1607 Capital Partners and City of London Investment Management, who specialise in buying trusts on cheap valuations discounts and selling when their discounts narrow.

If exercised in full, the buyback will reduce the portfolio in Baillie Gifford’s control by around £34 million to about £310 million. The tender offer requires shareholder approval at a general meeting to be held on 23 January.

Annual results today underline the disappointing returns that led to Edinburgh Partners’ sacking. In the year to 30 September the trust’s underlying NAV, including dividends paid, fell 4.6%, and the total return to shareholders slid 7.6% compared to a 6.9% gain in its benchmark, the FTSE All-World Europe ex- UK index.

Over three and five years to September the fund manager’s value style produced a 21.4% and 31.7% total NAV return against 60.4% from the benchmark index.

The handover will see the portfolio of Edinburgh Partners’ Craig Armour pass to Stephen Paice and Moritz Sitte, managers of Baillie Gifford European, a strong performing open-ended fund with a growth philosophy.

They are expected to replace most of its existing 39 stocks, which is why Baillie Gifford has waived its 0.55% annual management fee for six months to offset the cost of overhauling the trust’s holdings.

 

 

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