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Primed for ignition

With its dedication to high-quality, high-growth companies, Montanaro European Smaller Companies (MTE) has fallen awry of recent market trends. MTE’s manager, George Cooke, notes that the market is currently favouring low-quality, low-value companies (such as smaller southern-European banks). This may be due either to improving sentiment around Europe’s economy (having seemingly dodged a recession) or the initial effect of falling interest rates, which are typically positive for riskier assets like equities.

These are macroeconomic-level events that effect the wider European economy, however, and George is more focused on picking stocks than making bets on the economic outlook. He believes such short-term volatility can create opportunities to pick up positions at attractive valuations. We believe that this not only applies to MTE’s underlying holdings, but also to the trust itself.

With its shares having previously traded at a premium to net asset value (NAV), MTE derated heavily during 2022 as interest rates rose and economic uncertainty increased. Whilst nerves have settled a little, the current 13.0% discount remains wide relative to history and offers an attractive potential upside. Irrespective of the short-term picture, MTE’s NAV returns have still outperformed its peers and benchmark over the long term, and its holdings have shown few signs of diminishing quality or revenue growth in aggregate.