For financial professionals in the UK

The European Smaller Companies Trust – Q3 Commentary 2022

Ollie Beckett, Portfolio Manager of The European Smaller Companies Trust, delivers an update on the Company, highlighting factors currently impacting European markets, the key drivers of performance, and recent portfolio activity.

Ollie Beckett | Janus Henderson Investors
Ollie Beckett

Ollie Beckett

Portfolio Manager

25 Oct 2022
3 minute read

Investment Environment

European equities declined as persisting inflation concerns and energy prices fuelled investor anxieties about a severe recession. The European Central Bank (ECB) raised interest rates by 75 basis points (bps) -its largest ever increase -to 1.25%, which supported some banking stocks.¹

Portfolio Review

The Company underperformed the MSCI Europe Small Cap ex UK Index during the month.

Despite a weak economic backdrop, corporate results remained encouraging with strong sales growth tending to offset margin pressure in many market segments. Our top performers were BFF (Italian bank and factoring company), Van Lanschot (Dutch bank and wealth manager) and Criteo (marketing technology). BFF has been benefiting from the factoring market returning to the structure that existed before the huge state-funded, Covid-19 support measures. Van Lanschot also delivered better-than-expected results and continued to deliver high shareholder distributions from excess capital. Criteo also saw strong underlying product growth trends and although there are a few headwinds, we see continued fundamental value for the company.

Detractors from relative performance were stock specific. DFDS declined due to the weaker economy and its perceived cyclicality. However, we still see strong data points that support the Mediterranean business and positive price increases for goods crossing on the English Channel. Another detractor, Renewi, also declined as the demand for industrial waste decreased.

In terms of activity, we opened a new position in Duerr as the company has seen increased demand this year. It has a large order backlog, and we believe the easing of lockdowns in China could result in continued momentum for later in the year. We financed the new purchases through the disposal of stocks, namely Boskalis after the firm was bought out and converted to a private company. We think there is considerable value in the public markets now and expect trade buyers and private equity to take advantage of this once the debt markets have become more orderly and willing to price risk. This will be more likely once inflation has begun to decline and the extent of any recession is understood. We think we are closer to that point than the market currently assumes.

Manager outlook

The future is always an uncertain place and currently there are several different driving factors that are hard to judge. With that caveat, we believe that inflation is close to peaking with freight rates normalising, energy prices down from highs and as supply-chain blockages begin to clear. We think rising interest rates and the energy shock in Europe will likely drive a recession, though the severity of this might not be as bad as the market seems to fear.

Overall, we think that energy prices will be structurally higher than they were pre-Covid, more due to the lack of an oil and gas capital expenditure (capex) cycle than other factors, but clearly the flow of Russian energy into Europe will be an important factor should it ever return. The green transition will also demand a significant energy capex cycle. Company management teams will also be cautious about persisting with brittle supply chains dependent upon authoritarian regimes in Asia. We think there will be capex to come around near shoring and warehouse automation. The disinflationary drivers of the post-Global Financial Crisis, pre-Covid world look to be at an end, and we believe moderate inflation and interest rates will be a persistent factor in times to come.



¹Source:Bloomberg as at 30th September 2022


Capital expenditure (CAPEX) – Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. CapEx is often used to undertake new projects or investments by a company.

Cyclical stocks – Growth investing Companies that sell discretionary consumer items, such as cars, or industries highly sensitive to changes in the economy, such as miners. The prices of equities and bonds issued by cyclical companies tend to be strongly affected by ups and downs in the overall economy, when compared to non-cyclical companies.

Inflation – The rate at which the prices of goods and services are rising in an economy. The CPI and RPI are two common measures.

Recession – A recession is a macroeconomic term that refers to a significant decline in general economic activity in a designated region.It had been typically recognized as two consecutive quarters of economic decline, as reflected by GDP in conjunction with monthly indicators such as a rise in unemployment.


These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.


Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.


The information in this article does not qualify as an investment recommendation.


Marketing Communication.






Important information

Please read the following important information regarding funds related to this article.

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions.
    Specific risks
  • If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio that is diversified across more countries.
  • Where the Company invests in assets that are denominated in currencies other than the base currency, the currency exchange rate movements may cause the value of investments to fall as well as rise.
  • Most of the investments in this portfolio are in smaller companies shares. They may be more difficult to buy and sell, and their share prices may fluctuate more than those of larger companies.
  • This Company is suitable to be used as one component of several within a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested in this Company.
  • Active management techniques that have worked well in normal market conditions could prove ineffective or negative for performance at other times.
  • The Company could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Company.
  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The return on your investment is directly related to the prevailing market price of the Company's shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the Company. As a result, losses (or gains) may be higher or lower than those of the Company's assets.
  • The Company may use gearing (borrowing to invest) as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incurred by the Company can be greater than those of a Company that does not use gearing.
  • Using derivatives exposes the Company to risks different from - and potentially greater than - the risks associated with investing directly in securities. It may therefore result in additional loss, which could be significantly greater than the cost of the derivative.
  • If the Company seeks to minimise risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or negative for performance.