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London, UK, 12 August 2021
Edison issues review on TR European Growth Trust (TRG)
TR European Growth Trust (TRG) stands out among its more mid-cap focused peers for being a genuinely small-cap fund with a strong valuation awareness. This has served it well over the past year, and while it has yet to report its FY21 results, over the year to 30 June 2021 it posted share price and NAV total returns of 79.5% and 63.5% respectively, well ahead of comparator indices. The management team (lead manager Ollie Beckett, assisted by Rory Stokes and Julia Scheufler) caution that this was an exceptional year, but long-term annualised returns of c 15%+ underline the validity of TRG's approach even when its more value-orientated style has largely been out of favour. Despite the strong run of performance, TRG's shares trade at a double-digit discount to NAV, which has failed to close as it did in the previous period of exceptional performance from Q416 to Q417 (see chart), despite absolute NAV returns having been stronger.
TRG offers a differentiated approach to investing in European smaller companies, an area not well represented in the investment trust universe, with only four funds on offer despite a broad pool of companies (c 2,500) in which to fish. The managers seek growth but are valuation-aware, and their focus on cash-generative companies with strong market positions has provided decent returns for investors over many years. The long stock list helps mitigate the risk of smaller company investment, yet successful holdings can still have a meaningful impact on returns. While the outlook remains uncertain due to the pandemic, in our view the persistent double-digit discount to NAV seems unwarrantedly wide.
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