European Opportunities Trust PLC has published a new fact sheet on its website, providing details of portfolio holdings and past performance statistics as of the end of September. In September, the MSCI Europe index declined by 0.3% in sterling, while the company's net asset value (NAV) decreased by 0.8%. The company's net gearing stood at 6.0% at the end of September, and the discount to NAV was 9.5% at the month-end.
There are signs of a recession, with German companies warning of slowing economic activity and the possibility of Germany dipping back into recession. Earnings expectations for European companies are also decreasing, and higher costs, such as interest rates and energy costs, pose challenges for most companies. However, there are pockets of growth in countries like Brazil and India. The Brazilian economy is performing well, with the IMF raising its growth forecast for 2023 and 2024. This is beneficial for companies like Experian and Edenred, which have significant operations in Brazil. India is also experiencing growth, particularly in precision and quality manufacturing, which is driving demand for solutions from companies like Dassault Systèmes.
European equity sentiment is negative, with significant outflows from Europe-focused funds. Private equity has the opportunity to acquire assets at discounted prices from disgruntled public market investors. Spending on luxury products is stalling in many countries, leading to a reversal in the extraordinary performance of luxury goods stocks. However, spending by Very Very Important Customers (VVICs) is still growing strongly. Mainstream luxury spending is weakening. Energy stocks are benefiting from the rise in oil prices, but green energy is facing challenges, such as offshore wind companies and potential government taxes.
In terms of performance, RELX was the biggest contributor in September, driven by the company's commentary indicating sustainably higher growth rates in its Risk and Legal divisions. Novo Nordisk also performed well due to high demand for its new diabetes and weight reducing drugs. Darktrace shares contributed to the portfolio following news of Cisco's acquisition of Splunk, a US cyber security competitor. The offer price made Darktrace look cheap by comparison. On the other hand, Genus was the biggest detractor, with negative market sentiment and uncertain prospects for the Chinese pig market. Bayer also performed poorly due to poor management and strategic challenges, while Soitec faced a slowdown in the market for electric vehicles and smartphones. Experian shares also fell last month.
Overall, the company remains confident in its investments, particularly in Genus if its gene editing technology receives regulatory approval, and it is waiting to see if Bayer's new CEO can address the company's challenges through restructuring.