European shares have started 2023 on the front foot as being starved of Russian gas supplies has not had as devastating an impact as feared this winter and inflation shows some signs of easing.

However, in an environment which remains uncertain Bank of America strategists think investors should have exposure to more defensive areas of the market such as food, beverages, and healthcare.

Investment trust JPMorgan European Growth and Income (JEGI) has a significant weighting to businesses in these sectors with holdings in Nestle (NESN:SWX), the pharmaceutical trio Novo Nordisk (NOVO-B:CPH), Novartis (NOVN:SWX) and Roche (ROG:SWX) as well as Danone (BN:EPA) and Carlsberg (CARL-B:CPH).

Alongside these defensive names there are more growth-orientated investments and this makes the trust a balanced way to play a recovery in European stocks. What is more its shares trade at an enticing 12.8% discount to net asset value and pay a 4% dividend yield.

The long-term track record is good, outperforming the MSCI Europe excluding UK benchmark over 10 years by delivering a 10.3% annualised return compared with 8.7% from the comparative index.

This demonstrates the abilities of the experienced team to deliver across different market backdrops and when different investment styles have been in favour.

The investment team is comprised of Alexander Fitzalen Howard, Zenah Shuhaiber and Timothy Lewis who have a combined 65 years of investment experience. One downside is the ongoing charge which at 1.28% is relatively expensive, perhaps reflecting the trust’s relatively modest size.

HOW THE TRUST PICKS STOCKS

Each potential investment is put through a series of key questions aimed at finding suitable candidates for the portfolio. The initial focus is on finding good businesses which make attractive returns and have a management team which has demonstrated it can make rational decisions about how to use the money at its disposal.

Another important part of the process is to analyse how attractively valued a company is against its prospects. The team also require the fundamentals of the business (profit, revenue and cash flow) to be on an improving trend. Finally, an assessment is made on the sustainability of the business.

This disciplined investment process helps the team to arrive at a diversified portfolio of more than 100 companies which collectively are cheaper than the benchmark, better quality with higher returns on capital and possess superior earnings revisions.

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