At the beginning of the year, we had taken some risk out of the portfolio by reducing some financial holdings and some indebted economically sensitive businesses. We therefore entered the crisis ungeared and with a reasonable cash position. At the outset of the crash we reduced our risk, further raising cash. The severity of the market falls, however, meant that we didn’t sit on the cash position for long. Afterall, these opportunities don’t come around very often. We have added a number of new positions to the portfolio, increasing the quality characteristics of the fund but importantly at good valuation levels. This is what we believe should drive good returns over the long term.
Remy Cointreau, a French-listed owner of some of the best brands in the Cognac market. The shares had performed poorly heading into the year but took another leg down as the market crashed. This took the business to a point where, we believe, the valuation was entirely accounted for by its inventory of Cognac. This inventory is not only extremely valuable but, like Whisky, increases in value as it ages. Whilst we knew that Remy’s sales would be challenging, we knew there was significant asset backing to the share price. The shares have performed well since purchase.
MIPs is a Swedish business that has developed the BPS, or the MIPs Brain Protection System. This is a thin layer that can be integrated into helmets, reducing rotational rotation during a crash. The data shows that the BPS reduces the likelihood of brain injuries and is increasingly being integrated in helmets across a wide range of markets. Penetration is, however, only just starting with cycling and skiing helmets, with the range of possibilities within other markets being huge. We therefore believe the growth potential has a long way to run. We met the business before Christmas, but felt the shares were too expensive. We waited for the better opportunity that the markets have recently presented.
Other examples of new companies that we have invested in are Hello Fresh, the global leader in meal kits delivered to home; Nordic Semiconductor, the global leader in low power Bluetooth chip technology; and Interpump, a high-quality Italian industrial.
The markets have recently rallied quite significantly from their depths in mid-February on the basis of plateauing COVID-19 cases and signs of loosening lockdown restrictions across the globe. However, we would not be surprised were the volatility to return. We would embrace this volatility and take advantage of the opportunities that it throws up. This is an exciting time for investing!
I wanted to end this update to reiterate the board’s commitment to the dividend. While a lot of companies are cancelling or reducing their dividend, European Assets Trust will continue to pay the dividend.
Past performance should not be seen as an indication of future performance. Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.
Changes in rates of exchange may have an adverse effect on the value, price or income of investments. If markets fall, gearing can magnify the negative impact on performance. Where investments are made in smaller companies, their potential volatility may increase the risk to the value of, and the income from the investment.