Capitalising on this exciting opportunity requires a flexible and dynamic investment strategy. The JPMorgan European Discovery Trust plc invests in European smaller companies, seeking out entrepreneurial businesses that are often leaders in their market niches and/or have growth prospects that are underappreciated by the market.
Stock selection is guided by a disciplined investment strategy with a long track record of discovering Europe’s lesser known corporate leaders, providing attractive long-term return potential.
The trust is focused on bottom up stock selection but from this overarching investment themes often emerge. These new structural growth themes often appear in the small cap space first which allows this trust to gain early exposure to new exciting growing companies.
Currently some of the strongest growth potential is seen in companies benefitting from the increasing focus on health and wellness, technology-driven disruption, and an acceleration in efforts to tackle climate change.
The trust has successfully benefited from previous global investment trends. For example, the trust gained exposure to the opening up of China to luxury goods companies through investments in companies such as Ferragamo.
The trust also benefited from technology improvements in the medtech space via several holdings, including dental implant leader Straumann, while the move to digital downloads in the video games sector supported our holding in Ubisoft. All these investments generated strong returns for the trust before being sold when the stocks became large caps, with the proceeds used to invest in new small-cap opportunities.
Smaller stocks with big potential
Notwithstanding some brief, but significant, periods of underperformance, the smaller European stocks, that the JPMorgan European Discovery Trust focuses on, have not only outperformed large caps in Europe over the long-term, but have also outperformed most other markets globally. The MSCI Europe Small Cap Index is one of the best-performing indices in the world over the last two decades.
A compelling long term asset class
...European small cap have produced long term equity returns amongst the best in the world
Past performance is not a reliable indicator of future results
Source: Bloomberg. All series are rebased to 100 as at 31 December 1999 to 31 December 2020. All indices in GBP and include reinvested dividends. Indices do not include fees or operating expenses and are not available for actual investment. MSCI Europe Inc UK Small Cap index was launched in 2001, the data prior to that is back tested.
Just as attractive for investors is the fact that, although Europe's smaller companies have outperformed over many years, the sector remains underappreciated and under analysed by the market. This provides an opportunity for specialist active managers to take advantage of these market inefficiencies.
Greater scope to pick winning stocks
We believe the inefficiencies of the smaller company market and its lower sensitivity to the macroeconomic backdrop relative to larger caps offers greater opportunities for active stock pickers.
Source: J.P. Morgan Asset Management, Bloomberg, data as of 30 June, 2019.
MSCI Europe Small Cap Index revenue exposure (%)
Source: FactSet and J.P. Morgan Asset Management. As at 30 September 2020.
A fund that’s focused on exciting ideas
The JPMorgan European Discovery Trust plc operates in inefficient markets where active stock picking is essential. This is the essence of our ‘Discovery’strategy: the managers constantly scour Europe to uncover great investment opportunities, using an investment approach that combines the best of fundamental research and the best of quantitative analysis. Company meetings and engagement on environmental, social and governance issues are a key part of our research.
The aim is to uncover well managed stocks that are at an early stage in their development, so we can share fully in their future growth.
Currently, the trust’s managers are finding particularly exciting opportunities in the three global trends that have been most clearly highlighted by the global pandemic: health and wellness, technology and tackling climate change.
In the health and wellness arena, recent investments have included Technogym, an Italian manufacturer of premium fitness equipment for both commercial gyms and home use. This is an exciting stock that is tapping into the strong post-pandemic focus on health and fitness.
Technology is a particularly fertile area for the European small cap investor. Although this asset class is not always associated with technological innovation, it is in fact home to many global leading technology enablers. Swedish software company, Fortnox, provides financial software for small and mid-sized companies. Fortnox is a great example of a disruptive smaller company. It is completely cloud based and so does not have a legacy business acting a growth headwind unlike its large cap competitors.
When it comes to fighting climate change, European smaller companies are leading the field. We expect the European green deal to help bolster what is already solid demand for companies that are driving the transition to a low carbon economy, such as Scatec, the Norwegian renewable energy producer specialising in emerging markets.
Why JPMorgan European Discovery Trust plc?
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