bailey56 wrote:European Assets is another one I'm looking at with a similar yield, although the dividend varies from year to year according to the NAV.
Was interested to see that you are looking at European Assets (EAT), a trust I hold in a SIPP (and have profitably added to) over the course of near six years. However, EAT is very much an IT that needs understanding.
To give some background; F&C launched EAT back in 1972 and the trust jogged along quite happily until 2001 when F&C decided to do something radical. The decision was taken to adopt a capital distribution policy because, unlike in the UK, the majority of European companies were then notoriously reluctant to want to distribute surplus cash to shareholders in the form of dividends. A state of affairs that has since improved thanks to the pressure of institutions on Euro publicly quoted companies.
At the time such a move could not be undertaken by a UK registered trust due to the differing tax treatments of income and capital distributions to shareholders. Since then the UK tax law has been amended to accommodate such ITs wishing to pay dividends out of both income and capital – but, back in 2001 this was not the case. F&C looked around and decided that registering EAT in the Netherlands would best suit the trust’s to be adopted capital distribution policy where currently the trust maintains a primary listing, quoted in Euros, on the Amsterdam Stock Exchange. Here in the UK EAT is also listed on the LSE where it is quoted in Sterling.
The decision was also taken to shift the focus away from the established larger European companies to the mid-to-smaller quoted enterprises. The reasoning being that potentially faster growing companies would be better suited to EAT’s strategy of slicing off capital than that of their bigger and less dynamic equivalents.The problem for both F&C and EAT from the outset was they really didn’t have a management team in place that were comfortable operating such an investment style in the universe of European (ex UK) mid-to-smaller companies. That was until 2010 and the arrival of the up-and-coming Sam Cosh from the BNP Paribas Group who immediately began recruiting his own hand-picked team from amongst his group of contemporaries.
To bring things up-to-date; on the F&C website is a video-cast of the most recent EAT AGM held in London during April for the financial period ending 31 December 2016 during which manager Sam Cosh speaks at length …
http://www.fandc.com/uk/private-investors/investment-trusts/european-assets-trust/latest-videos/Obviously, it’s up to individual investors to consider the suitability of European Assets when viewed as an income producing asset. Such points to think about being …
• The changing relationship value of Sterling and the Euro. For example; while the amount of annual capital distribution is set at 6% of the NAV as of 31 December each year. Such an amount is declared in Euros for distribution to shareholders in three equal amounts throughout the course of the following year. Therefore, each distribution amount made to EAT’s UK shareholders is subject to the prevailing Sterling exchange rate and will vary accordingly.
• The dual unpredictability of what the NAV will be at the end of each calendar year in terms of that of previous calendar year periods and how it translates when converted to Sterling terms.
While I would contend that EAT does possibly have a place for an investor seeking income, I would argue that such a place be of subservient importance in the bigger scheme of things. Any holding of say 8% or more would make me uncomfortable and could well be asking for trouble at some later date. Unfortunately, for the new potential EAT investor, as things presently stand the share price has enjoyed a substantial re-rating in Sterling terms since Brexit, up 40% from a low-point of 915p.