European Investment Trust Plc(The) (LON:EUTP) has been managed by Edinburgh Partners (EP) since 2010. Lead manager Craig Armour employs EP’s strict valuation-driven investment process, aiming to generate long-term capital growth from a diversified portfolio of continental European equities. Following a period of outsized equity returns, Armour says that investors will once again pay more attention to individual company fundamentals and valuations. Since July 2017, EUT pays semi-annual, rather than annual dividends. While the focus is on capital rather than income growth, the ordinary distribution has increased every year since 2009. EUT’s current yield, including indicated and special dividends, is 2.5%.
Investment strategy: Seeking attractive valuations
EP’s in-house analysis shows that share prices correlate with inflation-adjusted five-year earnings performance, but share price moves are less correlated over shorter periods. The manager and his team undertake thorough fundamental research, with a particular focus on five-year earnings estimates. They aim to invest in companies that are trading on a five-year (5Y) P/E multiple of less than 11x. The resulting 35-45 stock portfolio is diversified by sector and geography, but the manager is unconstrained by the weightings of the FTSE Europe ex-UK index benchmark. Gearing of up to 20% of net assets is permitted; at end-October 2017 EUT had a net cash position of 1.1%.
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