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TR European lags benchmark as micro caps struggle

TR European lags benchmark as micro caps struggle – over the year ended 30 June 2019, the trust returned -7.3% in NAV terms against a 0.6% positive return for the Euromoney Smaller Companies Index (ex UK). A widening of the discount left shareholders with a return of -10.4%. The dividend was upped from 19p to 22p.

The manager says: “We were too optimistic in our hopes for a resolution to the global trade war, underestimating the impact of US President Trump’s tweets on risk appetite, and misjudged the speed at which global central banks would tighten policy. The protracted market fall we saw towards the end of 2018 was bad news for the Company, which paid for its exposure to the smaller end of the market cap scale, where stocks can often be relatively illiquid or economically sensitive. The subsequent market rally in the first half of 2019 did not deliver enough for the Company to recover the losses.”

In terms of specific stock moves “Poor performance during the review period was largely due to a combination of misjudged investments in specific stocks and being too leveraged into weaker markets that characterised the first halfof the financial year. At a stock level, the largest detractor was German lifestyle e-commerce business Westwing. This was an initial public offering (“IPO”) that was poorly handled by the listing banks, coupled with – in hindsight – a steep valuation that was undermined by substantial earnings downgrades caused by weakness in its international business. We retain a holding in the company as the core German business alone more than justifies the current market cap.

Finnish modular construction business Lehto also disappointed, after management deviated from the core strategy to take on a series of renovation projects generating substantial losses. We developed concerns about the balance sheet and exited the position at a loss. Dutch oil services company Fugro has been a disappointment having not yet seen the market recovery we anticipated.

We saw a positive contribution to performance from French LNG container system engineering company Gaztransport et Technigaz (“GTT”). LNG is structurally growing as a fuel and GTT is the dominant player in designing the liners for the associated carrier vessels. A position in German listed technology company Dialog Semiconductor also added value. We reinvested in the company after the market became overly despondent about the business after Apple, its largest client, announced plans to take power chip development in-house. French producer of silicon-on-insulator semiconductor wafers S.O.I.T.E.C. was another strong performer. Its products, which offer big improvements in semiconductor power efficiency, began to gain serious traction.

TRG : TR European lags benchmark as micro caps struggle

2 thoughts on “TR European lags benchmark as micro caps struggle”

  1. Stupid excuses by a manager that should know better. If it’s not Brexit it’s global growth and undervalued micro caps etc etc. If others can find a way to make money in a global economic slowdown then adjust accordingly- that’s what you’re bloody paid for. Few months then I’ll pull for a loss if doesn’t pick up.

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