European Opportunities Trust’s (EOT) underperformance in the half-year to November may have been what tipped the board into announcing a strategic review last Friday, but fund manager Alexander Darwall remains confident in the prospects for his portfolio of “special” companies.

Interim results today showed net asset value (NAV) including the annual 2p dividend paid in October dipped 0.2% in the six months to 30 November with shareholders eking out a slightly better 0.9% total return against 10.1% from the MSCI Europe index. 

The underperformance of more than 10% leaves the £400m investment trust trailing the index over three, five and 10 years with underlying NAV growth of 80% over a decade that is nearly half the 157.9% total return generated by the benchmark. Over the same period, shareholders made just over 62% as the shares derated and fell to a discount after the Wirecard collapse, a former top holding, in 2020.

However, a table in the results shows that anyone who had invested in EOT at launch in November 2000 would have seen a 912% total return, way ahead of the MSCI Europe’s 385% with an annualised 9.7% versus the index’s 6.5%.

Chair Matthew Dobbs, a former Asia fund manager at Schroders, said the board was “acutely aware” of shareholders’ disappointment and that it was the right time to review the company’s future and “come to an optimal solution”.

A merger or wind-up look likely, which raises the possibility of shareholders giving up just as Darwall and co-manager Luca Emo Capodilista – whose commitment and consistency of style and philosophy were praised by Dobbs – revive performance.

That’s the impression Darwall would like to give in his review of the performance of his growth stocks. While EOT was flat, its 26 holdings were far from that. The top five contributors were led by Genus, whose shares jumped nearly 33% after its gene-editing technology was approved by the US Food and Drug Administration. It is now the trust’s top holding at 11% of assets. 

Prysmian soared nearly 59% as demand for the Italian company’s electric cables grew as data centres ramped up capacity to deal with the boom in artificial intelligence (AI).

Camurus, a Swedish biotech holding, Ryanair and recovering Spanish healthcare company Grifols also did well rising 17%-26% in the six-month period.

However, their gains were offset by Dassault Systemes, RELX, Novo Nordisk, Edenred and Deutsche Börse falling between 24% and 15%. 

Dassault’s computer aided design and manufacture service has been hit by a contraction in the automotive industry caused by US tariffs and the slowing adoption of electric cars but the manager is convinced its “offer is a compelling one” and customers will return “after this tumultuous period”.

Echoing comments from Nick Train, whose long-term outperformance since 2000 has also been clouded by more recent underperformance, Darwall said of RELX, the UK data analytics group suffering from fears of AI competition, that the evidence of this was “scant”. He said: “in fact, the evidence points the other way with RELX reporting a higher growth rate than formerly estimated, indicating that this higher rate is sustainable. Its use of AI should help expand its service offering.”

On Novo Nordisk, the Danish obesity drug maker whose shares have tumbled nearly two thirds in the past two years, Darwall believed the worst was behind the company after management and board upheaval, loss of US market share and unfavourable policies from the Trump administration. However, agreements to cut the cost of Ozempic and Wegovy would “spur substantial volume and in turn revenue growth. In addition, the imminent launch of the new oral weight loss drug, Wegovy Pill, opens a new avenue for growth,” he said.

Edenred, another big factor in Darwall’s underperformance, was valued as if the global payments company’s business model was broken. “This is not the case: even in that part of their business affected by regulatory changes, the French and Italian governments are proposing price increases which will clearly benefit Edenred,” adding he expected the company to “continue its long and impressive record of earrings growth” this year. 

Darwall also challenged the “absurd” perception that Deutsche Börse would suffer from new rivals using AI to attack its stock exchange franchise. “The company’s success is built on attracting big trading volumes on its exchanges: software providers cannot change that. Turmoil in financial markets tends to be good for Deutsche Börse and we expect some turmoil in due course, which will help the company.”

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