Questor: for the chance of a short-term profit, buy TR European Growth 

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Jonathan Webster-Smith of Brooks Macdonald said he would hold TR European Growth while the economic backdrop remained supportive. 'Economic activity in Europe is still generally strong,' he said Credit: AFP/Getty Images/PHILIPPE LOPEZ

Occasionally Questor likes to look at short-term profit opportunities as opposed to our more usual “buy-and-hold” investment trust selections. This week we look at a 
well-managed fund whose large discount may not last.

Shares in TR European Growth, which invests in smaller companies listed in continental Europe, were trading at a small premium as recently as February but are now at a discount of 9pc. The share price is also about 17pc below its recent peak.

“TR European Growth has done very well – it has gained 259pc over the past five years, against 143pc for the broader market – but has come off a little recently. In our view this gives rise to a short-term trading opportunity,” said Jonathan Webster-Smith of Brooks Macdonald, the wealth manager, which recommends the fund for some of its clients’ portfolios.

He said the trust had an experienced manager in Ollie Beckett of Janus Henderson. Beckett has made gains of 246pc over the past 10 years, compared with 165pc for his peer group, according to FE Trustnet, the fund analyst.

“With a smaller companies fund you will always have some holdings that go wrong so the portfolio is well diversified, with almost 150 stocks,” Webster-Smith said. “The team meet more than 600 company managements a year and they have a strong sell discipline.

“They have a slight bias towards ‘value’ stocks and a cautious attitude to ‘bond proxies’.” The latter are 
low-growth stocks that produce reliable income and are seen as vulnerable when interest rates rise.

Despite the portfolio’s strengths, the Brooks Macdonald manager said he would hold it only while the economic backdrop remained supportive. “Economic activity in Europe is still generally strong,” he said. “There has been decent expansion in jobs, manufacturing and services, while fears of a severe trade war between America and China have softened.”

Monetary policy is also supportive, he added. “It would be logical at this stage of the cycle to expect interest rates to rise, but we are not seeing inflation.

“The European Central Bank is still very accommodative [keeping money cheap]. It is one or two years behind the US in terms of tightening monetary policy – this is one reason why we see holding TR European Growth as a trading opportunity.”

Webster-Smith said it was “really important” that consumer confidence and business activity remained strong and that he would reconsider his holding in the trust at the first sign of weakness.

We will report any developments of this sort. Meanwhile, we rate the trust as a short-term buy and suggest banking profits should the discount narrow appreciably.

Questor says: buy

Ticker: TRG

Share price at close: £10.36

Update: Pershing Square

Pershing Square, tipped in May last year and currently our worst performing investment trust, has announced that it will buy back up to $300m worth of its shares in an attempt to narrow the 20.8pc discount.

However, shareholders who “tender” some or all of their holding for repurchase will not know the price they will get until later: it will be at a discount of 15pc-25pc to the net asset value on May 9, depending on demand.

We are reluctant to recommend a sale of stock at an unknown price and suggest that anyone inclined to sell should wait and see what effect the repurchase has on the discount.

Investment trust news

Invesco Perpetual Enhanced Income is to lose its respected management team of Paul Causer, Paul Read and Rhys Davies. Invesco has given a year’s notice of its resignation as investment manager in a dispute over fees.

Fidelity Asian Values is to implement a variable, performance-related fee. The base fee will be 0.7pc a year but the overall charge could be as low as 0.5pc or as high as 0.9pc.

BlackRock Smaller Companies has scrapped its performance fee and amended its tiered base fee. The overall effect is to make the fund cheaper; it estimated the reduction at 20pc had the new arrangements been applied to the previous year.

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