Since the portfolio was restructured in 1997 to have a small and mid cap bias, the NAV per share of the trust has risen 289.9% in sterling terms, or 8.8% annualised.
Manager Paras Anand notes over the six months to 30 June the HSBC Europe Small Cap (ex UK) index outperformed popular regions like China and India, despite the strong headwinds it faced.
The sovereign debt crisis has weighed heavily on investor sentiment towards the region, he notes. “Certainly in our recent meetings with clients and prospects what is clear to us is that sentiment towards European equities and allocations to the region are at very low levels.”
However, while this should be reflected in the trust’s performance, he notes it has actually helped with stock selection. “European equities have the attraction of benefiting from one of the most important factors in driving stock returns; namely that European equities appear undervalued relative to the quality and potential of the underlying assets.”
While Anand says he is cognisant of the challenges Europe faces, he’s also heartened to be investing in an area where sentiment is very poor and assets are lowly valued. “This is a helpful starting point for making any investment.” M&A, a factor particularly relevant for small and mid caps, he notes, will also continue to provide a level of support.
Anand remains upbeat about Europe’s long-term prospects, believing the Euro will survive and that politicians remain committed to reforms. Once current uncertainties have abated the region should have a more flexible economic model, providing a better base for longer-term growth, he says.
