Edison Investment Research Limited
London, UK, 18 September 2023
JPMorgan European Discovery Trust: A balanced trust targeting a world-beating market
JPMorgan European Discovery Trust (JEDT) invests in European small-cap companies (excluding UK), with the aim of providing shareholders with long term capital growth. The investment case for this sector is clear and simple. European small caps have outperformed most other markets over the long term. JEDT’s disappointing performance during H122 prompted its managers to rotate out of high-growth IT software and medtech stocks, in favour of a more balanced approach focused on quality and value names. Many of these acquisitions are now contributing to returns.
JPMorgan Asset Management’s very significant fundamental research resources, combined with the use of state-of-the-art, AI-driven quantitative tools, arguably provides JEDT with a competitive edge over its peers.
Now may be a good time to acquire exposure to JEDT, as the valuations of European small caps ex-UK are low both historically and relative to European large caps (see the following section for details), and JEDT’s discount has recently been trading two percentage points or more above its long-term average of c 12% (over the 10 years to end August 2023). However, the discount has scope to narrow as and when performance returns to form, and investor sentiment towards the sector improves.
The main risk to the investment case for JEDT is an unexpected deterioration in economic activity and a resultant decline in earnings expectations.
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