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Questor: we sold Jupiter European Opportunities last year. Now it is time to buy again
Questor investment trust bargain: the manager is even more motivated to succeed and we can hope for good returns from European stocks this year
A somewhat pedestrian profit of 5.2pc is all we have made so far on 2019’s investment trust tip of the year, Augmentum Fintech. Undeterred, we will today select a favourite fund for 2020; we will also update on Augmentum.
By contrast with the fintech fund’s underwhelming performance to date, our best trust pick of last year, Oakley Capital Investments, has delivered 38.6pc for readers. We have therefore approached the fund manager who put us on to Oakley for his choice of fund for 2020.
That fund manager was Andrew Lister, of Aberdeen Standard Investments, and he suggested a trust that Questor had previously tipped but later sold: the former Jupiter European Opportunities, now renamed simply European Opportunities following a change of fund management firm, although not of the actual manager.
The portfolio has been run throughout by Alexander Darwall, first when he worked for Jupiter and now under the auspices of his own firm, Devon Equity Management.
It wasn’t the change of fund firm that prompted our advice to sell, however. Rather, it was the portfolio’s very significant exposure to a stock, Wirecard, a German payments company, that became embroiled in accusations, denied by the firm, of accounting malpractice.
We took the view that if a fund manager had as much as 17pc of the portfolio in one stock, that stock really had to be bombproof.
We are ready to reinstate a buy rating on the trust in view of three factors: the fall in the Wirecard stake to 12pc of the fund; Mr Lister’s sense that the manager was unlikely to make the same mistake again; and his belief that the trust’s 5.8pc discount was unwarranted in view of the prospects for European stocks and its “newly energised” manager.
In relation to the Wirecard debacle, Mr Lister said: “I think that, whatever he [Mr Darwall] says publicly, he is likely to be a little more hesitant in letting anything grow to be that big in the future.”
He added: “Mr Darwall’s motivation for leaving Jupiter and setting up his own boutique is that he wants to focus 100pc of his effort on delivering investment performance and avoid the distractions that can come with being at a larger house.
“So you have a newly energised manager who is highly motivated to succeed and has a great long-term record.”
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He pointed out that, in spite of Wirecard, the trust delivered returns of 21.4pc in 2019 on the basis of net asset value.
The trust has traded at a premium fairly regularly in the past, so the current discount offers “a little bit of value” in Mr Lister’s words. “Europe as a region is still fairly unpopular with investors, despite corporates there tending to have a global footprint and having performed consistently well in the past five to 10 years,” he added.
“The trust therefore feels a bit of a contrarian choice, which I like. If global stock markets continue to perform well, I see no reason why European stocks will not do the same.
“A final long-term reason to buy is the very close alignment between manager and shareholders. Mr Darwall has one of the largest stakes held by the manager of any trust, with more than four million shares valued at more than £30m.”
Questor says: buy
Ticker: JEO
Share price at close: 814p
Update: Augmentum Fintech
Our selection of Augmentum last year was based on a positive assessment of its prospects by Peel Hunt, the stockbroker, which retains that view today.
“It offers unique access to one of the final frontiers of disruption, led by experienced entrepreneurs and seasoned private equity investors,” said Peel Hunt’s Anthony Leatham.
“The portfolio has demonstrated strong revenue growth and delivered an internal return of 19pc, with some very exciting disruption still to come.” The discount is 7.8pc.
Questor says: hold
Ticker: AUGM
Share price at close: 103.5p
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