We think a 7.5% discount to net asset value (NAV) on Henderson EuroTrust (HNE) offers an attractive entry point for investors seeking exposure to some of the highest qualities companies in continental Europe. This market remains largely out of favour, yet offers significant re-rating opportunities.

After 25 years under the stewardship of Tim Stevenson, Henderson EuroTrust is now managed by Jamie Ross. Shares believes that if Ross can sustain his strong start, there is scope for the valuation discount on the trust to narrow significantly.

Henderson EuroTrust’s objective is to achieve a superior total return from a portfolio of high quality European investments (excluding the UK). The investment approach is encapsulated in the tagline ‘seeking growth, quality and consistency’.

Ross took over as sole manager in February 2019 and under his guidance the trust, which has outperformed the benchmark in nine of the last 10 financial years, has continued to beat the FTSE World Europe ex-UK index.

One of Winterflood Investment Trust’s 2020 picks, Henderson EuroTrust targets companies it classifies as either ‘compounders’, namely reliable and consistent high return businesses, or ‘improvers’.

Ross selects stocks based on in-depth fundamental analysis rather than sector or macro calls and prefers to run a more concentrated portfolio than his predecessor.

He scours the market for large and medium-sized firms with strong market positions and balance sheets, generating high returns on capital and consistent growth, and which are run by high quality management. They must also be perceived by the fund manager to be undervalued relative to their growth prospects.

Such companies tend to have pricing power stemming from strong brands and operate in industries where there are only one or two competitors. We also like the fact that Ross has a growing focus on integrating ESG analysis into his investment theses too.

As of 31 December 2019, leading holdings included the likes of Dutch pharmaceutical ingredients-to-specialty materials concern DSM, Danish pharma company Novo Nordisk, French media conglomerate Vivendi, software giant SAP and Swiss foods behemoth Nestle.

While the focus is more on growth and total returns than the dividend, income-hunters will also be delighted to note that the shareholder reward has been increased every year since 2005. Winterflood also points out the payout has been fully covered in all but two of the last 10 financial years, while Henderson EuroTrust’s five year annualised dividend growth of 12.4% is higher than the peer group average of 11.1%.

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