Hear from ESCT’s fund manager: ShareSoc webinar

Introduction

Good morning, and welcome to this ShareSoc webinar with The European Smaller Companies Trust.

My name is Amit Vadara, and I’m a director of ShareSoc, and I will be your host for this event.

Today’s presenter will be Ollie Beckett, who is a fund manager of The European Smaller Companies Trust and is also on the European Equities team at Janus Henderson Investors.

It gives me great pleasure to welcome Ollie Beckett, and over to you, Ollie.

Good morning, everybody. So, I’m Ollie Beckett, the, lead manager on The European Smaller Companies Trust here at Janus Henderson.

So I’m gonna give a short presentation and then, as Amit said, we’ll do a bit of a Q&A at the end.

See if I can work these slides.

Oh, gotta bring them to life.

Meet The European Smaller Companies Trust

Okay. So I’ll go through a little bit about who we are and what we do.

Essentially this is a, a portfolio of European smaller companies, predominantly ex the UK, so continental Europe.

And I’ll try and explain a little bit what we do that’s a little bit different, and what our current thoughts are.

Okay. So as I say, what do we do?

Well, we invest in European small and mid-sized companies.

And we’re looking, I guess for names that maybe you haven’t heard of, maybe sort of maybe the winners of tomorrow, but, you know, undervalued opportunities.

Look, we’re essentially, in simple terms, we are looking for undervalued companies where we believe the perception of the market to be wrong.

Now you’ll see, we have quite a lot of holdings, a hundred and twenty holdings, so it’s not one of your, you know, high conviction focused funds that a lot of people like to talk about.

Now this is, I’ve sort of, this is what we’ve always done, okay?

So there’s nothing, nothing different.

I’ve run this trust since two thousand and seven, and that’s what we’ve had.

We’ve had a long list.

And I would point out that, you know, we have about a fifty-five percent win rate, which is better than most, but it’s about making money on that fifty-five percent.

So I’m not a great believer in the small cap space of the, the high conviction focused fund idea anyway.

Just in terms of this trust, post the merger last year with, European assets from Columbia Threadneedle, we now pay a five percent dividend.

Now, this can’t fully come out of capital.

The income on the fund is about two and a half percent, so it can’t come, purely come out of income, so some of this is also paid out of capital.

But bear in mind we have large revenue reserves, so we should be good for the for-foresee-foreseeable future, at least a dozen or so years, to pay this five percent dividend annually.

Also, maybe worth pointing out on this trust that the board put in place a discount protection mechanism where we’re trying to protect the discount around to NAV around mid-single digit.

And if you were to go on and look at, recent, reports, we have been buying shares most days recently ’cause, we have unfortunately been trading at about an eight, nine percent discount of late.

The team doing the discovery work

Here’s a picture of the team.

So there’s the three of us, but actually now there’s four of us, and I’ll come back to that.

So, you know, Rory’s been with us for about fourteen, fifteen years now, and Julia for about eight years.

So it’s a fairly stable team that’s been running this trust for a long time.

And as I say, more recently, we’ve taken on a young gentleman called Benjamin Lavin.

So he was part of the Janus Henderson graduate training programme here.

So again, so we’ve got an additional resource to sort of go around, meet companies, talk to companies, check up on analyst research.

And a couple of things it points out here, you know, we’re running a balanced fund.

What does that mean?

We care about valuation, and we will remain disciplined on price.

Yet, you know, value in itself isn’t enough.

There always has to be a catalyst.

You know, that catalyst can be top-down.

It might be a theme.

You know, maybe it is AI, maybe it is defence, whatever.

Or it might be bottom-up.

More likely it’s bottom-up in terms of we have a management change.

There’s gonna be a division sold off or, you know, capital allocation’s gonna change, right?

But we are a balanced fund, and we are a true small cap fund, which is quite rare.

Actually, if you look at most of the competitors out there, whether it be closed-end or open-ended, most of them are sort of more mid-cap than we are.

And we are at that low end because we think there’s an opportunity, and we particularly think there’s a valuation opportunity at the moment.

Who we are

Janus Henderson, look, we’re a large fund manager.

Janus Henderson came out of the merger of Janus from Denver and Henderson from London.

More recently, we have been taken private, predominantly by Trian, a US investor, headed by Nelson Peltz and a company called General Catalyst.

General Catalyst bring, a lot of AI (artificial intelligence) expertise, with them, which I think, you know, we can expect to see rolled out across the company.

But, you know, we as fund managers use AI, but I’m not sure that particularly differentiates us from most of the competitors out there.

You know, it is now something we regularly use.

So having General Catalyst as an investor should be a good thing.

Other than that, nothing really changes from the perspective of this, investment trust with Janus Henderson going private as they did at beginning of July.

Why Europe, and why now?

Right. Europe and European smaller companies.

Over time, you know, European smaller companies has been the place to be.

Now, but more recently that hasn’t.

You know, large cap has outperformed for the last four or five years.

And that’s because, you know, w-we’ve seen, if you like, more downgrades on small cap than we have on large cap.

That has started to change this year.

We’ve started to see, greater earnings growth this year in European small cap, which is interesting ’cause European small cap is trading at, you know, historically low discount versus large cap, you know.

So I think there’s a big valuation opportunity here.

Now, the outperformance of large cap was logical.

You know, we came out of COVID, and there was after that initial period of restocking, there was some destocking.

And European small cap is more exposed to industrials, okay?

So suffered from that destocking.

And then subsequently, the inflation pick-up and the interest rate rises again, you know, that hurts small cap more, and benefited financials, which are predominantly large cap.

Russia going into Ukraine, energy prices going up, predominantly large cap.

But what we’re seeing now, you know, we’re seeing a broadening.

We’re seeing, you know, that destocking effect has gone away, and we’re seeing restocking, which is benefiting a number of the industrials.

We’ve seen a pickup in industrial data and as I say, if you look at the indices, small cap versus large cap is over-represented in, industrials, and, and less represented in sort of financials and energy.

So I think, you know, this is a very interesting time to be looking at European smaller companies, particularly on the valuation perspective.

European Smaller Companies – diversification

So European smaller companies, why might it be interesting maybe to a UK investor?

You know, the UK market is very service-led.

It’s quite narrow. We don’t make much, unfortunately.

And then if you look at UK small mid cap, it’s very geared to the UK housing market.

Now, I think, you know, valuations in the UK are interesting, but I’m not here to really discuss that.

But what I’m saying is this brings you some interesting diversification.

I’ve tried to outline some examples here.

You know, currently we are seeing an improving economy in the Nordics, you know, particularly in Sweden, which I can come back to.

We are seeing a pickup in fiscal spending in Germany.

Germany has, you know, doesn’t have a huge budget deficit unlike the UK and France, and that infrastructure and defence spending is coming through.

Sure, we also have to accept there’s some, you know, pretty big geopolitical sort of uncertainty around the Merz government.

And then, you know, since the financial crisis and the pain that Southern Europe took during that period, you know, we’re seeing pretty impressive growth coming out of, you know, Greece, Portugal, Spain.

I mean, this trust predominantly will give you some exposure to Spain, but we do have also some off-benchmark exposure to Greece.

So that’s again what gives you.

And maybe sort of re-emphasising the point, European smaller companies is sort of geared to global industrial production just ’cause of, you know, a number of the companies within the benchmark.

So again, it gives you that.

If you hope we’re gonna see an improving economy, and we have actually in terms of the data, then this gives you that exposure.

What we haven’t really seen is people returning to European smaller companies in terms of assets and money.

And that probably is because of economic uncertainty.

You know, we go back to last year, people were hopeful, and then we have Mr Trump and his tariffs, and this year we have his intervention into the Strait of Hormuz.

So just when you sort of think, “Okay, everyone’s getting a bit more comfortable with the world.

Maybe they’ll come back to European small cap.

Dissuaded from doing so.

But again, I, as I say, I re-emphasize, I think the valuations are interesting and things have been gradually getting better.

But again, let’s admit it.

At the moment, there is uncertainty.

You know, what is gonna happen with the oil price?

What is gonna therefore happen with bond yields?

You know, if, and a lot will depend on that oil price.

If the oil price comes off, then I think we can expect to see, bond yields come down, and, maybe hope to see a sort of stronger, equity market and particularly European smaller companies.

And the other factor, obviously, we are going into the US midterms.

Beyond that, it also gives you, look, you know, European smaller companies, what does it give you?

That sector diversification, as I sort of pointed out, that you’re probably n- you’re not re- Well, you’re not probably, you aren’t gonna get in the UK small cap space, you know, whether that’s industrial automation, semiconductor equipment and the whole exposure to AI and data centres, which come back to, you know, tech and med tech and sort of lab equipment.

Maybe touching on AI because we’ve sort of, seen a sell-off recently in that whole space.

And that does hit, you know, this trust, and it does hit the European small cap space ’cause as I say, actually, you know, it’s a good thing.

There are a number of leading sort of semiconductor equipment companies which have been benefiting from this whole AI data centre growth.

But clearly, there’s concerns around financing, you know, as we’ve seen with the neo cloud companies like CoreWeave, and there’s also concerns, you know, concerns about what return on investment will the likes of these hyperscalers get.

You know, personally, you know, there are, I think there are still some positive signs out there.

We’re seeing increased usage across the economy still.

Token, usage is going up.

GPU (graphics processing unit rental rates are going up.

And actually, the hyperscaler return on equity estimates that we’re seeing from analysts have also been going up.

But look, there is a risk.

You know, we’ve sort of been here before, and at some point, we probably will have a more sustained sell-off.

I don’t think as, is that yet to happen.

I don’t think it’s gonna happen yet, but maybe time will tell.

So I think this space is still interesting You know, coming back to that increased usage, we’re seeing across society, I mean to say all companies are using it, you’re probably using it, we’re using it daily.

You’re starting to see it in some of the say, increased usage in drug discovery is one of the sort of big hopes out there that it will reduce the time to discover new drugs.

You know, we have, you know, lab equipment companies like Tecan in Switzerland doing liquid handling in laboratories.

You know, which is seeing a number of, or, yeah, has relationships with the likes of Nvidia, and we are, or ex- you know, we’re seeing a pickup in orders, which is sort of related to AI.

So that’s, you know, that’s why there’s grounds for optimism, but there’s no getting away from the question marks are out there.

And if we’re gonna talk, you know, what are the, your returns on investment, it’s really too early to tell, and it’s hard to tell at this point.

Beyond that sector div-diversification, you know, with what you get with European small cap is some pretty, pretty interesting niches.

You know, I’ve mentioned some of the companies here that we own in the trust.

Alzchem, the only Western pro-producer of pure creatine, which is being, seeing increased usage as people want to maintain muscle mass.

Or companies like Acast out of Sweden, which is a, you know, fast-growing podcast advertising platform.

As more and more people listen to podcasts, yet actually the advertising revenues have yet to catch up.

A particularly exciting opportunity in the US, which has sort of lagged Europe.

Or whether it’s companies like Elmos out of Germany, again, which we own in the portfolio, which provides, you know, sensors for cars.

It doesn’t matter what your engine is, it doesn’t matter if it’s electric or combustion engine, we are seeing more and more sensors going into a high-end car.

And then I guess the extreme is the, you know, the Waymo, the sort of driverless taxis out there.

You know, so beyond, you know, there’s a lot of niche winners, and then beyond that, we’ll also have companies that, you know, where there’s action being taken, taking place.

You know, one of our largest holdings, TKH, out of the Netherlands, we’re seeing, yeah, hopefully, the conglomerate discount should disappear as they split into two businesses, an automation business and electrification business.

You know, and that’s something we’ve been lobbying hard for the last few years.

So there’s those value opportunities coming to fruition.

So I think it’s a pretty exciting space, and it gives you very interesting diversification, okay?

So don’t, it’s quite easy to get negative about Europe and the lack of reform and sort of label it as some sort of museum, you know, living museum.

There’s a lot of exciting stuff going on within European smaller companies, and you can get some pretty exciting returns.

How we find investment opportunities

I’m not gonna dwell on this too much, but you know, what do we do?

We go out there, we meet companies, we meet management, that’s what we do.

And then, you know, and I- You know, we do a lot of analysis, and a lot of it’s the same as what other people do in terms of looking for the sort of competitive, threats, strength of management, et cetera.

Maybe something that’s a little bit different to some of the others.

We, you know, we take a pretty- We look at companies across the company life cycle, where companies sit, if you like.

So we take a wide funnel, you know, and we use a lot of screens to try and find sort of valuation anomalies and then go off and get meetings, go off and get calls.

Try and not be sort of investment bank-led, you know, try and be proactive.

Company life cycle

You know, I say we run quite a long list, so we can have some early-stage companies, you know, like Kuross out of Switzerland, which has a new bone graft technology, which actually uses your immune sys- the person’s immune system to try and stimulate bone growth, particularly for sort of spinal injuries.

We will, like everybody, you know, invest in that quality growth space.

You know, that’s where most small cap funds sit, logically, small companies getting bigger.

We’ll also, though, go into the mature space, and this very much helped us in ‘twenty-one, ‘twenty-two when everyone else had run away from this space.

This is opportunistic ideas.

You know, people tend to overstate structural change and understate cyclical, and this can throw up valuation anomalies.

And then another area where we’ll play where maybe many won’t is in turnarounds.

If you like rubbish companies, okay, companies that don’t meet their cost of capital, but where we think there’s an inflection, a point of change.

You know, and that with JCDecaux, the outdoor advertising company, you’ll have seen the billboards and probably more importantly, the digital screens in stations, et cetera.

You know, they overexpanded in China, so they pulled out of many of those markets, got out of many of those airports where they were earning poor returns.

And then they had a, a competitor in the Western world, Clear Channel, who was, you know, very price competitive because they were running the business for cash.

You know, Clear Channel’s now moved out of those Western markets, and we have only much more rational competition going on for JCDecaux.

And on top of that, the company has moved away from focusing on top-line growth to profitability and cash flow.

And that is exactly what we’ve seen improve, you know, with this- in this slightly less competitive environment and a more rational sort of strategy in China.

And with- A-and fundamentally, outdoor advertising is a good place to be.

Ten years ago, this was 3% of advertising budgets.

Today, that’s 10%.

You know, and that turnaround is happening, and we’re starting to see the analyst upgrades and the recommendation changes.

So that’s why we’ll play in that turnaround space, looking for companies with improving returns.

Okay.

What we look for in companies

And these are some more of examples of, you know, across the life cycle.

You know, early-stage companies.

It’s only a small part of the fund, but we can do it because of that long list.

You know, recent IPO (initial public offering) out of Scandinavia, out of Finland, Sensofusion, looking at sort of anti-drone technology.

Um- And then turnarounds, ams-OSRAM in the sort of semiconductor space has predominantly been focused on automotive and actually is doing slightly better there because of the problems of a competitor, but is also now supplying, micro LED, technology to go into augmented reality glasses or probably more known as meta glasses.

Let’s not go into the rights and wrongs of meta glasses, but, you know, there seems to be a demand for them.

And then also, they have a new, optical interconnect, architecture, which is could potentially could be, help with power consumption in optical networking and data centres.

So there’s an-another example for turnaround.

And Elmos, you know, growth compound, which I’ve already mentioned in the space of sort of sensors going into cars.

Where ESCT is finding opportunities today

Maybe looking at, you know, the geographical breakdown, we are heavily overweight Germany, okay?

Now I know the geopolitical sort of concerns.

Obviously, they’re pretty widely, out there, and the concerns around can emerge as government survive.

But, you know, we are seeing an improvement in the economic environment.

We’ve even seen this week a pickup in consumer spending in Germany.

Sweden, I’ll come back to it maybe, we’ve gone from being underweight for the best part of ten years or more to overweight.

And you may not be aware, but of this ex-UK small cap index, Sweden is the largest constituent.

You know, Sweden is a country that every politician’s visiting to try and work out how have they got such a great equity culture, how have they got these pension funds that invest in all these IPOs, how have they got big, you know, retail investment.

France, we’ve gone underweight, in August.

Sure.

You know, there’s massive budget concerns and, you know, we’re gonna go and political concerns as we go into the election, presidential elections in spring next year.

But I would point out this is a very consensual underweight, okay?

So this is something we need to keep an eye on.

But for the time being, you know, we’ll, we will stay there.

On the sector front, I would say, look, there is a cyclicality to our portfolio.

So through the year, as the, industrial data has improved, we’ve got more overweight industrials.

The other big changes- Well, the other changes are we’ve gone slightly now overweight healthcare, having been underweight for a long period of time.

We’re finding some more interesting ideas there, whether they be sort of growthy ideas like ChemoMetec out of Denmark, which sort of has instrumentation to count cells, for sort of plasma cells, et cetera.

Or- And we’re now- The other thing is we’re- so healthcare, we also have some turnaround ideas, things like Carl Zeiss Meditec in Germany.

And then the other big change for us is going underweight financials.

We did- which we did a couple of months ago.

This is a massively consensual overweight.

So far so good on that front.

We’ve been right to be, you know, underweight financials.

We’ve sort of started to think some of the banks look pretty fully valued on price to book.

Now, sure, if there’s consolidation or they’re more efficient with their balance sheets, there might be some upside.

But we started to think, to be honest, if yields went higher from here, well, we’re worried about the economy.

I don’t really want to own banks particularly.

And if, you know, oil price comes off and bond yields come off, well, then actually we’re probably better exposed to other parts of the cyclical economy, like some of the more industrial plays.

So those are the big changes of late.

Why now?

As I said, some of the economic data.

Sweden, it’s getting better, okay?

And you saw that this morning with the largest housing company out of Sweden, JM, which we own, which is seeing a sort of pickup in prices and a pickup in demand, and housing starts they expect to accelerate going into Q four.

Okay, so we’re, we’re pretty optimistic there.

And as I say, real wages have gone up in Sweden.

And you’ve seen companies like Boost, online clothing retailers, delivering improving results as the years gone on.

And Germany, look, not all our German exposure is really German-related.

You know, like I mentioned, Alzchem doing creatine will sell globally.

You know, people trying to pump up in the gym everywhere, not just in Germany.

But we are seeing improving data despite the backdrop, on the political front.

So those are two company- countries we’re pretty positive about.

Performance

This is the performance data.

I mean, year to date, it’s been good.

I would say, look, September, we’ve seen a bit of a reversal of that, and it’s been a little bit tough.

And as I say, we’ve seen a little bit of an AI sell-off, and we do have exposure there.

So that’s hurt us short term.

Again, in the medium term, I’m still positive.

And look, we’re gonna have volatility because of the sort of geopolitical backdrop, because of the straightforward moves, because of the energy prices, and as I say, going into these midterm elections.

Statistically, equity markets perform well after midterm elections, but who knows?

This time could be different.

But, you know, over time, I feel this trust has delivered good returns, okay?

And as I say, and the performance of this trust, and we’re trying to do things a little bit different, we’ve done okay.

And I would say recently, that’s despite us being a true small cap fund because we have seen the outperformance of large cap versus mid and mid versus small.

So the performance is sort of despite that, but we’re in that small cap space because we see a lot of opportunities, a lot of companies which people are ignoring, a lot of attractive valuations.

So As I say, I think the long-term track record, is pretty good.

And the process I’ve sort of touched on this morning is, you know, what we’ve been using over those years.

This is for compliance sake, and there’s some discrete performance.

An opportunity shaped for long-term investors

And then, as I say So look, I’ve tried to give you an introduction to The European Smaller Companies Trust, give- hopefully highlighted the sort of interesting diversification it can bring, particularly to a UK investor, and some of the exciting opportunities out there.

So I, I’ll probably stop there and pass over to Amit, and I’m then happy to take some questions.

Q&A

Fantastic. Thank you, Ollie.

That was really interesting and very informative.

Now let’s have a look at the Q&A and see what’s going on in there.

So we’ve got a question here from Kevin Win-Wilson, who says,

You suggest that the current rate of dividends of 5% prior NAV may be unsustainable in a few years as top-up reserves will run out.

What’s the fu- what’s the future for dividends after that?

You might want to clarify that one.

Okay.

Maybe I Sorry, I might have confused.

Right.

So with the underlying yield on the portfolio is about 2.5%.

So beyond that, we’re gonna have to pay it out of capital.

And that, that’s not a problem, we can pay it out of capital.

But what I’m saying is, also on top of that, we’ve got revenue reserves that should last for 13, 14 years.

So, slightly an opposite to what the question’s saying, it really isn’t gonna be a problem at all.

Highly confident of that, of paying a 5% dividend for the foreseeable future.

And I would also point out maybe, ’cause whilst we’re on that, the 5% dividend, which has come in post the merger, it doesn’t require us to change how we manage the money.

We are still gonna be running a true small cap fund.

Pa- partly because of, you know, that flexibility around revenue reserves to pay the dividend, and partly because it isn’t pa- an issue paying that dividend out of capital.

So no, with the, that 5% dividend is gonna be there for the foreseeable future.

Excellent.

Yeah, I thought you might have got the end of- wrong end of the stick there.

It was potentially the way it came across.

Okay, another one from Kevin again, actually.

He’s got his questions in early here.

Europe’s increasingly investing in defence, and so do you see value opportunities for small cap, or is it just the big companies that are gonna benefit?

No, I, I, I really do actually, particularly at the moment.

I think, you know, go back to last year, everyone sort of got very excited and the defence companies tend to, did perform very well.

But no, we’re seeing some opportunities in the small cap, well mid cap stocks, type stocks like Renk in Germany, which does, gearboxes for some of the land vehicles, but also, has marine exposure.

Indra out of Spain, again, is slightly more mid cappy but has basically transitioned from being an IT c- IT services company to the de facto Spanish defence company.

And then some real sort of small cap, sort of almost micro cap companies like Gabler, out of Germany doing sort of masts for submarines.

So yeah, I, I think the valuation The sector sort of takes its lead from Rheinmetall, and obviously Rheinmetall had some sort of order cancellations, and that led to a, a sell-off in this, space, but I actually think it’s very interesting.

And what these companies are now building up as they sort of win more and more contracts and tenders, and it is about execution, they’ve got to execute, but they should be able to do that.

They’re building up more and more of a service revenue for years to come, and I think people are really undervaluing that, and if you like, the duration of visibility of earnings that we should see from these companies.

So actually, yeah, short term, I think this is a space that is ov- oversold and you can very much play through the European small cap space.

And we do have exposure, and it’s an expo- area that we’ve actually been increasing in the last couple of months.

Excellent.

Thank you.

Got a couple of questions here, around weighting.

And so you’re underweight in most geographies except Germany and Sweden.

Is the fund invested in underfunded classes against the benchmark?

Not sure if I get that.

Okay.

So on this slide here, I don’t know if it’s got a number, but you can see our weightings versus the benchmark.

So we are, I don’t know if that’s black.

I don’t know.

And, and then the benchmark is green.

So look, this is a bottom-up fund, so we don’t sit there going, “Oh, well, I’m really excited about, G- you know…”

It’s not all about Germany, Sweden, but that’s where we’re finding the opportunities.

And look, in Sweden, let me just outline a couple of things maybe.

This is a very retail-led market.

As I say, politicians are all off visiting Stockholm because, you know, particularly the UK, you sort of want a bit of what Sweden’s got, if you like.

But there’s, S- Swedish small cap has dramatically underperformed Swedish large cap of late.

Go back to COVID and Swedish small cap was, you know, on very high valuations as people sat at home sort of day trading and on retail blogs.

Then we had this correction- And that carried on even into last year.

And because of that large retail element to the investing in Sweden, it sort of, you get momentum.

It sort of overshoots and undershoots, if you like.

So we had the sell-off overshoot, and then we also had a technical element this year around consolidation of the, the big four Swedish pension funds went into three.

And one of those Swedish pension funds sold off all its small mid-cap exposure, right?

I don’t know what their reasoning was, but we had this technical sell-off until about April.

So we got this rare opportunity in Sweden, I would point out, but that’s- So that’s means that from a bottom-up perspective, we’re seeing a lot of exciting opportunities.

Whereas, I would say, as I say, for the last ten years or so, we’ve been underweight Sweden because of valuations.

Because that’s really what we’re looking at, you know.

Why are we underweight, Switzerland at the moment?

Well, we’ve not found very attractive ideas from a valuation perspective.

So it’s very much bottom-up led.

But I’d say that chart hopefully gives you a sign of where we are vis-à-vis the index.

But hey, look, not too unduly worried about the index.

We’re not sort of, you know, led by the index.

Yeah, it’s very much a- It’s just a measure to be, you know, we’ve measured against it.

Okay.

That’s a great answer.

Thank you.

Jonathan Gould wants to know what’s the turnover rate of your holdings?

Okay.

So the turnover on the fund last year went up because of the merger, okay?

Well, we did a tender offer, to get a certain American activist off our shareholder register.

So we did a forty-two percent tender, and then in autumn we then merged with the Threadneedle European assets.

So the turnover figure last year was sixty-one, sixty-two percent.

But more representative over the last few years has been around forty, forty-one percent.

And then within that turnover, you know, I’d say we’ve got quite a long list.

It’s not turnover, just the holdings.

So what we do a lot is change the weightings.

You know, we might like something for the longer term, but if it sells off, we buy more, or if something outperforms in the short term, then we’ll change the holding.

So we very actively manage the weightings, and unfortunately, that’s become necessary because of the huge degree of volatility in the market, which certainly isn’t gonna go away whilst Mr Trump’s in power.

But also you get more and more people, you know, automated trading these days, people trading baskets.

You know, investment banks launch a basket every week, and people trade baskets.

So this creates opportunities for us, but it does mean we have to trade more.

So it’s not a forty percent turnover in names.

It’s far less than that, but that is the ultimate turnover figure because of those weighting changes.

Right.

Thank you.

So George Philip Johnson would like to know what’s been the primary benefits to the trust from the merger with European assets?

I’ve got two lovely new board members, now who are bringing value, to the, to the board.

It’s g- it brought us back scale, right?

And there are a number of investors, to be honest, won’t look at investment trusts unless there’s a degree of liquidity and a degree of scale.

And we did lose that with the tender offer, okay?

Something we had to do, or the board decided we had to do, as I say, to get rid of a certain activist.

So I think it- those scale benefits and obviously the scale benefits obviously have benefits in terms of costs, okay?

You’re spreading the cost over a greater amount of assets.

So that’s the real benefit that it’s brought.

And as I say, hopefully, we’re a more relevant investment for more people.

Excellent.

So I’ve got a question here from Michelle.

Just to add on the dividend questions that we’ve already had- Yeah …are there opportunities in European small caps to increase the two and a half percent yield, or is it a really tough income to find, sorry, really tough market to find income?

Yeah, sure.

We could go out there and find companies that are paying, you know, five, six percent dividends, okay.

But, you know, we, for example, we have a Dutch wealth manager called Van Lanschot, which pays- will pay at least a high single-digit dividend.

But that’s not, you know, that shouldn’t be- I don’t want to be driven by our search for dividend.

You know, predominantly, we’re looking for capital growth, okay?

Now part of that, you know, capital allocation could be a, from, the investment companies can be dividends or share buybacks.

All right.

So, but so I don’t, I don’t want that dictating what we own.

There are companies out there we could buy with much higher dividends.

But it, it really, as I say, it really isn’t a problem for us to pay that five percent dividend.

That’s not gonna be an issue at all.

Now, as I say, at the moment, we’re also doing share buybacks on the trust, okay, to try and maintain that mid-single digit discount.

So actually the underlying yield at the moment is probably slightly more than five percent, but there you go.

But no, that- We’re not gonna be driven- We’re not searching for income.

We’re searching for the best investments and where we see undervalued opportunities.

Thank you.

George has got a question.

It also relates to the in-integration of European assets into ESCT.

And he wants to know, what were the biggest challenges in integrating that portfolio, assuming, of course, there wasn’t, there probably wasn’t a hundred percent overlap?

There was very little overlap.

It was much more of a midcap portfolio, whereas I say we’re a true small cap fund.

They weren’t bad, bad quality companies at all.

So I’m not gonna sit here and say, “Oh, they’ve invested in rubbish.”

That’s true- that’s just not the case.

I think it, you know, what served us well, as I say, has been trying to look for companies with improving returns, not necessarily those companies today that have the highest returns ’cause they tend to be valued accordingly.

But actually looking for companies with improving returns and we tend to also find greater valuation anomalies, worse research coverage if you go down the market cap.

So that gives us that opportunity.

So look, it was a slightly different portfolio.

So there are probably I can’t quite count at the moment.

Let’s say there’s four or five names that we have continued to hold post that merger, but there wasn’t a high degree of overlap.

So sure, there was a period of turnover, but actually not a major issue actually restructuring the portfolio.

Okay.

Excellent.

Thank you, Ollie.

I don’t think we have any more questions on screen at the moment, so And I’ve run out of my own, little scribbles and notes.

So thank you very much indeed.

Just to add that I added ESCT to my portfolio about three weeks ago when I signed on as to host ’cause I took-

Fantastic.

-a closer look.

Well, that’s good.

Thank you very much for doing so, Amit.

And look, and thank you very much for everyone’s time this morning.

And hopefully I’ve given you some sort of insight into the exciting opportunity there is out there in European smaller companies.

So please don’t be dissuaded by what you may or may not think about Europe.

I think y- this is an interesting area to try and make some money.

But thank you very much for your time.

Thank you very much indeed, Ollie.

That’s a brilliant presentation.