JPMorgan European Discovery (JEDT ) fund managers Francesco Conte and Edward Greaves have been taken off the smaller companies investment trust after the board became alarmed at its underperformance at a time when activist Saba Capital has built a 13% stake.

Following a review, the board decided to stick with JP Morgan Asset Management (JPMAM) but asked for new managers. Conte (pictured below), who has worked on the portfolio since 1998, and Greaves, who joined him in 2016, will step down from the £650m trust tomorrow.

They will be replaced by Jon Ingram, head of JPMAM’s unconstrained team, which includes its European and UK mid- and small-cap fund managers, and European small company fund managers Jack Featherby and Jules Bloch.

Ingram, who joined JPMAM in 2000 and has led the unconstrained team since 2007, runs five open-ended Dynamic funds – four investing in Europe, including technology, and one in the UK.

All have beaten their benchmarks over three, five and 10 years, unlike European Discovery, trust chair Marc van Gelder told analysts yesterday.

According to Deutsche Numis, Van Gelder highlighted JEDT’s underperformance, with net asset value (NAV) falling 2.6% over one year and by an annualised 1.4% over three years. Meanwhile, the MSCI Europe ex-UK Small Cap index gained 0.2% over 12 months and 1.9% annualised over three years.

‘The board is delighted to welcome Jon, Jack and Jules as named managers of the company portfolio. With Jon’s extensive experience, strong long-term outperformance record and the team’s collective 37 years of experience on the JPM investment platform, we are confident JEDT is well positioned to take advantage of the exciting growth potential of the dynamic and often overlooked European small-cap market,’ Van Gelder said in a stock exchange announcement.

The writing was on the wall for what Numis analyst Ash Nandi said was a ‘significant changing of the guard’ after half-year results in December showed that although Conte and Greaves had improved performance following a repositioning of the portfolio, returns still trailed the MSCI benchmark over one, three, five and 10 years.

‘Given the relatively high turnover of 60-160% per year, the new management team will relatively quickly put their stamp on the portfolio,’ Nandi said.

Stifel analyst Will Crighton said it was good to see the board firmly address underperformance but that he would retain a ‘negative’ rating until he sees evidence of an improvement.

There were alternatives

Anthony Leatham of Peel Hunt was surprised the board did not look beyond JPMAM. ‘A quick review of the returns achieved by actively managed funds in the open-ended IA sector suggests there are a number of strategies and managers that have delivered top-quartile returns and strong index outperformance over the last five years,’ he said.

JEDT shares closed unchanged at 435p yesterday, 11% below NAV. The discount has narrowed from 16% last July when Saba emerged with a position. The US activist, who last year helped push European Opportunities Trust (EOT ) into a 25% tender offer, edged its stake higher to 13% in January, most of it held through derivatives.

Allspring, a leading US value investor in UK investment companies, recently lifted its stake to 17%.

At 27 February, JEDT had delivered a 116.1% total shareholder return over 10 years, trailing Montanaro European Smaller Companies (MTE ) and Janus Henderson’s European Smaller Companies Trust (ESCT ), which returned 174.4% and 177.8% respectively. However, it did beat Columbia Threadneedle’s high-yielding European Assets (EAT ), which advanced just 69%.