TILLIT has removed the European Opportunities trust from its fund universe, citing “persistent long-term underperformance” and “structural challenges” as cause for concern.
The £558m investment trust’s 76% return over the past decade trails 43.8 percentage points behind its peers in the IT Europe sector, who sped ahead at 119.9% on average.
Its returns are unlikely to catch up anytime soon, according to TILLIT CIO Sheridan Admans, who had “doubts about the manager’s ability to deliver sustainable long-term returns”.
The trust has beaten its sector and MSCI Europe benchmark since manager Alexander Darwall launched it in 2000, but Admans said the investment strategy has shifted away from what initially made it appealing.
European Opportunities has ditched some of its exposure to mid caps that made it unique in favour of more large-cap benchmark names, Admans said.
“While the trust’s focus on innovative, cash-generative companies is appealing, it has faced challenges in delivering consistent outperformance against its benchmark and peers over the past decade,” he added.
“The shift towards large-cap stocks, coupled with struggles in a higher-rate environment, has moved the trust away from its mid-cap bias and attraction to its original investment proposition.”
Short-term decision making under pressure
The trust also made some poor decisions when faced with pressure from activist shareholders, including Saba Capital, that could further “disrupt the trust’s investment strategy”.
Saba fought for a 50% tender offer at a continuation vote in 2023 but European Opportunities compromised at 25%, resulting in the sale of £221m worth of shares.
The trust if offering an additional 25% tender offer later this year, which Admans said “amplifies the risk of forced asset sales at unfavourable prices”.
“Pressure from activist shareholders may lead to continued short-term decision-making that further undermines performance.
“The 2023 continuation vote, marked by notable opposition, reflects declining confidence in the current management team and their strategy, with nothing yet to suggest waning confidence has been restored.”