European Smaller Companies Investment Trust: Playing on a niche

European Smaller Companies Investment Trust [LON:ESCT], with GBP898m of assets under management is a part of the Janus Henderson group and falls into the Association of Investment Companies’ European Smaller Companies sector.

The sector has four constituents, and the fund aims to provide capital growth by investing in smaller- and medium-sized companies which are quoted, domiciled, listed or have operations in Europe excluding the UK.

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Launched this week in 1990, it has seen significant changes across its thirty-four-year history, being formed in the days of the European Economic Community – a precursor of the European Community – and one year after the Fall of the Berlin Wall, where half of Europe was still shuttered behind the Iron Curtain.

Lead fund manager is Ollie Beckett.  He joined Henderson investors – one of the two asset managers that merged to create Janus Henerson Investors – in 1989 and worked on technology investments. Beckett is assisted by Rory Stokes and Julia Scheufler. Stokes joined Janus Henderson from Liberum Capital in 2015.  Scheufler joined the fund this year after six years as an analyst and associate portfolio manager at the investment manager.

Beckett believes that Europe’s smaller cap sector is a dynamic source of capital growth, with smaller companies offering greater potential for growth that their larger peers. The fund looks at European companies with a market cap of less-than EUR7bn, creating an investment universe of around 2,000 stocks across Europe. By comparison there are about 200 large cap companies above this threshold.

Finding a niche

The fund seeks diversity on geographical, industrial and sectoral bases.  It invests on a thematic basis, looking for smaller European companies that have carved out a niche that can take advantage of global trends.

As Beckett says: “These offer an alternative take on these phenomena. They can be subject to different risks and drivers when compared to larger participants.”

One example he cites of a different ‘take’ on a theme is REPowerEU, a pan-European initiative to reduce fossil fuels in the energy mix, backed with EUR48bn of funding. Although Beckett admits that the most apparent beneficiaries will be larger renewable energy companies, he also believes that the smaller companies that supply them could also benefit, such as Nexans [EPA:NEX] a cable manufacturer from France, or Belgian offshore wind turbine logistics company, DEME Group [EBR:DEME].