European small-cap companies may offer strong long-term opportunities for investors, according to Jack Featherby, portfolio manager of JPMorgan European Discovery Trust (LON:JEDT). This European investment trust targets lesser-known firms with strong fundamentals, market-leading products, and the potential for consistent growth.
Featherby highlighted Rational AG, a German manufacturer of commercial ovens, as an example of the type of business that aligns with the trust’s investment philosophy. While JEDT does not currently hold shares in Rational, Featherby noted its significant long-term performance, with the company’s stock price increasing more than 800 per cent since 2005. He described Rational as a business with a globally competitive product, under-penetrated in the market and demonstrating high capital returns.
JEDT’s investment approach centres on identifying companies with either a single high-performing product or a dominant market position in their domestic markets. Featherby referred to the latter as “national champions”, which are able to generate consistent returns and exercise greater control over their growth, whether they expand internationally or focus solely on their local markets.
The trust applies a three-part framework to assess companies: value, business quality, and operational momentum. The latter, according to Featherby, provides short-term indicators of where markets are heading. He said this framework has helped the trust maintain exposure to defence stocks, which performed strongly in 2025. However, as valuations in the sector have increased, JEDT has started to reduce its allocation.
Looking ahead, JPMorgan European Discovery Trust sees electrification as a major long-term investment theme. Featherby stated that the transition away from traditional energy sources, across sectors including transport and infrastructure, will require significant capital investment. This, he said, is being driven by environmental pressures and policy commitments, making it a structural trend rather than a temporary shift.
JEDT’s portfolio includes companies such as German engineering firm Bilfinger SE, which is involved in infrastructure projects linked to the transition to green energy. According to Featherby, large German firms are contracting businesses like Bilfinger to support their move away from fossil fuels.
Featherby said that in a volatile global environment, small-cap companies with a narrow operational focus and a single superior product can remain stable and resilient. He argued that the current macroeconomic climate, which includes signs of de-globalisation, could favour domestically focused small-cap companies over large multinationals.
He concluded that while attention remains fixed on AI and other high-valuation sectors, investors should not overlook the potential value and stability offered by smaller companies operating with a focused, long-term strategy.
