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London, UK, 23 March 2021
Edison issues review on TR European Growth Trust (TRG)
TR European Growth Trust (TRG) has enjoyed a stellar period of performance since the COVID-19-driven stock market sell-off in March 2020 (beating the benchmark by c 25pp over one year to 28 February 2021), helped by its managers sticking to their valuation-aware investment process, as well as a timely increase in the trust's gearing. Lead manager Ollie Beckett says the team is optimistic on the prospects for small-cap European stocks - many of which have stronger balance sheets than their large-cap counterparts - as the economy recovers. TRG has a broadly diversified portfolio of c 130 stocks, allowing the managers to look for high-growth micro-caps as well as structural growth stories and recovery plays. Although the trust is now at the top of its peer group for NAV total returns over one and 10 years, it trades at the widest discount to NAV, suggesting significant scope for a re-rating similar to that seen in 2016/17.
TRG has suffered in the past few years as its main area of focus - underappreciated European small-caps - has been largely ignored by investors. The portfolio offers a good mix of growth and value, with a focus on cash-generative companies helping it to achieve portfolio income in H121 that was above the pre-pandemic level of H119, and a c 5% increase in the recently announced interim dividend compared with H120. Recent performance has been strong as the managers have stuck to their tried-and-tested process, assisted by greater investor appreciation of stocks with social and environmental benefits. We note that in the last sustained period of value stock outperformance in 2016/17, TRG's shares traded at a premium to NAV, and there is thus significant scope for a re-rating from the current c 13% discount.
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