JPMorgan European Discovery Trust plc (LON:JEDT) has announced its final results for the year ended 31st March 2025.
HIGHLIGHTS
• NAV total return of +2.9% compared with +1.3% for the MSCI Europe (ex UK) Small Cap Net Total Return Index (the ‘Benchmark’). Share price return of +7.0%.
• For three years cumulative ended 31st March 2025, NAV total return of +5.6% compared with +3.8% for the Benchmark. Share price return of +15.6%.
• For five years cumulative ended 31st March 2025, NAV total return of +76.0% compared with +70.2% for the Benchmark. Share price return of +114.1%.
• For ten years cumulative ended 31st March 2025, NAV total return of +126.7% compared with +117.7% for the Benchmark. Share price return of +147.1%.
• Revenue return per share of 12.36p as at 31st March 2025 compared with 12.04 as at 31st March 2024 (+2.7%).
• The discount to NAV narrowed from 10.6% as at end March 2024 to 7.3% as at end March 2025, with the average discount over the period of 9.7%. As at 16th June 2025, the discount was 7.7%.
• During the year, the Company repurchased 14,660,188 shares at an average discount of 9.8%. A further 16,347,505 shares have been re-purchased since the period end.
The Chairman of the Company, Marc van Gelder, commented:
“I am happy to report that this year’s outperformance has enhanced the Company’s already robust long-term performance track record. The Company has made absolute gains and outperformed the market over the three, five and ten year periods ending 31st March 2025.
While recent geopolitical developments are certainly unsettling, they are likely to bring positive long-term benefits for the sector. Smaller companies are relatively insulated from the adverse impact of US tariffs benefiting from their significant regional market exposure. Increased government spending on defence and infrastructure across EU and other continental European nations should also benefit small and mid-cap companies.
The Portfolio Managers’ have positioned the portfolio to capitalise on recent positive developments by focusing on companies with strong growth prospects and some immunity from the volatility generated by macroeconomic and geopolitical developments.”
Portfolio Managers, Jon Ingram, Jack Featherby, Jules Bloch, commented:
“This year, our team has successfully navigated a turbulent macroeconomic environment, demonstrating resilience and expertise. European smaller companies offer a rich landscape for outstanding investment opportunities. Our skilled team is dedicated to discovering these future leaders, which we affectionately term hidden gems.”
“European small caps are presenting a unique opportunity, trading at a notable discount relative to other asset classes while offering robust growth potential. This gap strengthens our confidence in the future of this asset class, especially as Europe’s macroeconomic outlook begins to brighten. By seizing these undervalued prospects, we are poised to deliver significant returns and foster enduring success for our shareholders.”
CHAIRMAN’S STATEMENT
Dear Shareholder,
I am pleased to present the Annual Report for the year ended 31st March 2025 and to report that our Company has:
• outperformed its benchmark over the year, achieving a total return on net assets of +2.9%, against the MSCI Europe (ex UK) Small Cap Index return of +1.3%;
• outperformed the market over the three, five and ten year periods ending 31st March 2025;
• record revenue return for the year of 12.36p, an increase of +2.7%.
Investment Performance
The market environment remained supportive over the past year. An easing in inflation pressures and a gradual reduction in interest rates combined with rising wages, lifted consumer spending across the region leading to increased investment. On the political front, developments over the past year have been dramatic and historically significant. The new US administration’s aggressive tariffs and other policy pronouncements threaten to upend the post-World War II economic and political order. Consequently, European countries have been forced to reassess their relationship with the US and in particular, commit to higher defence spending. As an example, the new German government elected in February 2025 has promised a major increase in domestic defence and infrastructure investment.
Most major equity markets saw sharp declines in early 2025 due to concerns that higher US tariffs would slow global growth, raise inflation and delay or curtail investment plans. However, since the beginning of 2025, European small and mid-cap companies have fared better than most market sectors, including European large caps. This is supported by the fact that they generate much of their revenue from domestic sales and are thus relatively insulated from the impact of a global trade war. Investors are also clearly mindful that small cap and mid-cap companies will benefit from increased spending on defence and infrastructure.
For the financial year ended 31st March 2025 the MSCI Europe (ex UK) Small Cap Index returned +1.3%. Our Company outperformed its benchmark over the year, achieving a total return on net assets of +2.9%, while the total return on share price was +7.0%. This led to a significant narrowing of the discount at which the Company’s shares trade relative to net asset value (NAV) from 10.6% to 7.3% over the course of the year.
While the past year’s performance has been pleasing, the Company adopts a long-term investment strategy. Therefore, it is important to also consider the performance over a longer timeframe. I am happy to report that this year’s outperformance has enhanced the Company’s already robust long-term performance track record. The Company has made absolute gains and outperformed the market over the three, five and ten year periods ending March 2025. Significantly, over ten years making annualised returns of +8.5% on an NAV basis versus the annualised benchmark return of +8.1%.
Portfolio Enhancements
During the past year, the Portfolio Managers implemented some important enhancements to their process and risk management. Whilst the Company’s investment strategy continues to seek to identify and invest early in high-quality companies when they are relatively unknown and undervalued, the Portfolio Managers noted in their 2024 Half Year Report that this strategy works best when markets are trending higher but tends to struggle during periods of high volatility caused by global crises and other sources of macro uncertainty. However, historically, once these periods of stress end, portfolio performance has bounced back strongly.
The changes made by the Portfolio Managers during the second half of FY25 are intended to minimise downside risk during periods of volatility and capture upside risk when volatility reduces. So far, these changes have had a positive impact on performance. All the gains made by the Company over the past year were made in the last six months of the financial year. During this period, the NAV rose +3.4%, against the benchmark return of +0.3%. The Portfolio Managers’ report on pages 16 to 24 of the Annual Report provides further detail on this positive turnaround in performance, along with commentary on portfolio positioning and the investment outlook.
Gearing
Gearing can be a differentiator for an investment trust. The Board believes that it can be beneficial to performance and it sets the overall strategic gearing policy and guidelines which are reviewed at each Board meeting. Borrowings during the year consisted of a EUR125m revolving credit facility, which was EUR70m drawn down at year end. During the year gearing varied between 9.6% geared and 10.3% cash as a result of the Tender Offer. At the end of the financial year, gearing stood at 5.2%.
Revenue and Dividends
The Board’s dividend policy is to pay out the majority of revenue available each year to its shareholders. This is set against the Company’s objective of maximising capital growth, therefore the Portfolio Managers are not constrained to deliver income in any one financial year.
On 5th February 2025, an interim dividend of 3.0 pence per share was paid, which was an increase from the previous year’s interim dividend of 2.5 pence. This increase reflects the higher income that the Company has received during the first six months of the financial year compared to the previous year.
Considering the income received during the financial year, the Company’s revenue reserves, and pending shareholder approval at the upcoming Annual General Meeting (AGM), the Directors have declared a final dividend of 10.0 pence per share. This final dividend together with the interim dividend paid, is higher than the revenue return per share of 12.4 pence earned during the financial year ending 31st March 2025.
This will take the total dividend for the year to 13.0 pence, compared to a total dividend of 10.5 pence for the previous year. The final dividend will be paid on 4th August 2025, to shareholders registered at the close of business on 4th July 2025, with the ex-dividend date being 3rd July 2025. Following this dividend payment, the Company’s revenue reserves will total £12.3 million, compared to £9.0 million as at 31st March 2024.
The dividend level is influenced by the share buybacks conducted since the year-end while allowing the Company to fulfill the distribution requirement of section 1158 of the Corporation Tax Act 2010 and maintain its investment trust status.
Discount Management and Share Repurchases
The Company’s share price discount relative to net asset value narrowed during the Company’s financial year, from 10.6% as at end March 2024 to 7.3% at end March 2025. The average discount over the period was 9.7% and as at 16th June 2025, the discount was 7.7%.
The Board monitors the level of the discount carefully. When appropriate, it uses the ability to repurchase shares to minimise the short-term volatility and the absolute level of the discount. During the year, the Company repurchased 14,660,188 shares at an average discount of 9.8%. A further 16,347,505 shares have been re-purchased since the period end.
As set out in the circular to shareholders dated 28th April 2025, the Board and the Investment Manager anticipated that, in the light of recent buy-back activity, the Company’s authority to repurchase Ordinary Shares granted at the 2024 Annual General Meeting would likely be fully utilised before it could be refreshed at the Company’s Annual General Meeting in July 2025. In order to ensure that the Company could continue to operate its discount management policy, on 16th May 2025, shareholders approved the early renewal of the Company’s authority – to effectively repurchase up to 14.99% of its issued share capital (such authority to expire at the conclusion of the 2025 Annual General Meeting). Subsequent to this renewal, the Company has continued to use this buy-back authority.
Management Fee and Manager Evaluation
Following the Board’s discussions with the Manager during the year an agreement was reached to reduce the investment management fee. With effect from 1st April 2025, the fee is now charged on a tiered basis on the Company’s net assets at an annual rate of 0.70% on the first £300 million and 0.65% of net assets above that amount, compared to the previous flat fee of 0.75%.
During the year the Management Engagement Committee conducted the annual Board and Manager review facilitated by an independent board evaluation firm. The review of the Manager encompassed investment management, company secretarial, administrative and marketing services provided. The review took account of the Manager’s investment performance record, management processes, investment style, resources committed and risk controls. The Board concurred with the Committee’s recommendation that the continued appointment of the Manager was in the best interests of shareholders.
The Board
The Board continues to look ahead to manage its succession planning. In the normal course, having served for nine years I would step down from the Board at the forthcoming AGM. However, the Board is mindful of the changes over the last 18 months, in particular the investment management team and the appointment of two new Directors during the period. In order to ensure ongoing stability and continuity, the Board, in consultation with shareholders, believed that it was in the Company’s best interests that I should extend my term to the AGM in 2026. The Board has commenced the recruitment process for a new Non-Executive Director.
Environmental, Social and Governance (‘ESG’)
The Board shares the Investment Manager’s view of the significance of financially material environmental, social and governance (‘ESG’) factors when making long term investment decisions. The Portfolio Managers regularly discuss financially material ESG issues with the management teams of potential and current investee companies. Further information on the Manager’s ESG process and engagement is set out in the ESG Report on pages 35 to 37 of the Annual Report.
Shareholder Engagement
The Board values regular interactions with a cross section of shareholders as they are very helpful in assisting with the management of the Company’s affairs. The Board members seek opportunities to have such meetings and welcome approaches from shareholders at any time.
Over the course of the year, we have engaged with several of the Company’s largest shareholders to listen to their perspectives. The Board values the feedback it has received and insights it has gained through this engagement process. We remain committed, as ever, to continued engagement over the coming year. I would like to take this opportunity to thank shareholders for their time and ongoing support.
With the Company’s improved performance and positive outlook for the sector, a sub-committee of the Board has been working closely with the Manager’s sales and marketing teams to raise the profile of the Company to attract more retail investors and to communicate the appeal of the European small and mid-cap sector.
Annual General Meeting
The Company’s Annual General Meeting will be held on Wednesday, 23rd July 2025 at 12.30 p.m. at 60 Victoria Embankment, London EC4Y 0JP.
The Portfolio Managers will present to shareholders, reviewing the past year and commenting on the outlook for the current year. The meeting will be followed by lunch to provide shareholders the opportunity to meet the Directors and the Manager’s representatives. My fellow Directors and I look forward to seeing as many shareholders as possible at the AGM.
For shareholders wishing to follow the AGM proceedings but choosing not to attend, we will be able to welcome you through our conferencing software. Details on how to register together with access details will shortly be available on the Company’s website: www.jpmorganeuropeandiscovery.co.uk, or by contacting the Company Secretary at [email protected]
As is normal practice, all voting on the resolutions will be conducted by a poll. For technical reasons, shareholders viewing the meeting via conferencing software will not be able to vote on the poll. We therefore encourage all shareholders who cannot attend in person, to exercise their votes in advance of the meeting by completing and submitting their proxy form.
If you have any detailed or technical questions, it would be helpful if you could raise them in advance with the Company Secretary at 60 Victoria Embankment, London EC4Y 0JP or via the ‘Ask a Question’ link on the Company’s website.
If there are any changes to the arrangements for the Annual General Meeting, the Company will update shareholders through the Company’s website and, if appropriate, through an announcement on the London Stock Exchange.
Stay Informed
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Outlook
The outlook for European small and mid-caps and our Company has brightened considerably since my last report.
The regional economy is strengthening, supported by declining interest rates. At the same time while recent geopolitical developments are certainly unsettling, they are likely to bring positive long-term benefits for the sector. Smaller companies are relatively insulated from the adverse impact of US tariffs benefiting from their significant regional market exposure. Increased government spending on defence and infrastructure across EU and other continental European nations should also benefit small and mid-cap companies.
In addition, the increasingly rapid spread of artificial intelligence (AI) is likely to be particularly advantageous for small and mid-cap companies. By their very nature, such businesses tend to be innovative and nimble. These characteristics suggest they will lead the way in their adoption of AI tools and will thus be amongst the first to realise related productivity gains and cost savings.
Finally, valuations in this part of the market remain very attractive in relative and absolute terms versus European large caps, the US and other global markets. All the favourable factors are aligned in support of small and mid-caps which suggest that the sector’s long overdue rebound cannot be far off.
The Portfolio Managers’ have positioned the portfolio to capitalise on recent positive developments by focusing on companies with strong growth prospects and some immunity from the volatility generated by macroeconomic and geopolitical developments. So I look forward with some confidence of reporting on the continuation of our Company’s long track record of strong gains and outperformance over the coming months.
Marc van Gelder
Chairman
18th June 2025
INVESTMENT MANAGER’S REPORT
Review
The financial year ending 31st March 2025 was relatively stable compared to the turbulent years we have recently experienced. Notable events in the past few years included a mini financial crisis following the bankruptcies of Silicon Valley Bank (SVB) and Credit Suisse, an inflation shock following post-COVID supply chain disruptions, and an energy crisis spurred by Russia’s invasion of Ukraine. In contrast, the 2024-25 financial year passed quite smoothly, with gradual declines in European energy prices and CPI expectations, and a resultant steady easing of policy rates by central banks. At the same time, there has been a growing realisation of the potential of artificial intelligence (AI) which could prove to be a once in a generation event for investors.
Where there was volatility, it was mainly driven by politics, and this impacted performance, both positively and negatively. Over the summer of 2024 the Trust’s performance was impacted by the French parliamentary elections, due to our French overweight. Conversely the German elections at the start of 2025 brought with them hopes of fiscal stimulus, which benefited performance due to our positive positioning towards a resurgent and recovering Europe.
However, the most significant political event over the period happened outside Europe – the US presidential election – which saw Donald Trump decisively re-elected, leading to a surge in US markets amid shouts of US exceptionalism. The markets’ initial enthusiastic response was fired by the view that the new administration would be good for markets and business. There was also optimism about the prospect of a peace dividend from the resolution of conflicts in Ukraine and the Middle East, which President Trump promised to end quickly.
What a difference a few months can make. The narrative of US exceptionalism has shifted dramatically with speculation that the US’s post-war dominance of the international political and economic landscape is coming to an end. President Trump’s ‘America First’ policies are beginning to destabilise the post-World War II economic order by prioritising domestic manufacturing over a global trade system based on comparative advantage. Following the end of the Trust’s financial year, the administration launched an unpredictable ‘on-off’ approach to tariff policy that has generated huge uncertainty among consumers and investors in the US and around the world.
The US’s relationship with its European allies has also shifted dramatically. US Vice President Vance’s speech at the Munich Security Conference harshly criticised NATO and European leaders and is being widely interpreted as a turning point for post-war trans-Atlantic relations. The speech has sparked calls for European rearmament and increased spending by EU governments.
We believe these political shifts are significant for the Trust. In our view, the impact on the European Small Cap asset class could be profoundly positive over the long-term. We delve into this in more length in this report’s Outlook section, but in summary, European domestically-focused companies – particularly European Small Caps with substantial domestic revenue exposure – are relatively insulated from a global trade war and poised to benefit from greater investment in European infrastructure and increased defence spending. In addition, smaller companies stand to gain from initiatives like former Italian Prime Minister and ECB governor, Mario Draghi’s report on reducing European red tape to enhance competitiveness (see further discussion below), and from a number of other positive developments we foresee, including, falling interest rates (given smaller businesses’ sensitivity to floating rate debt), improving consumer confidence driven by rising wage growth, and the efficiency gains offered by AI.
Indeed, if we examine the performance of European Small Caps since the November 2024 US presidential election, it is clear they have already begun to factor in these favourable influences. The sector has demonstrated strong relative performance compared to European large caps, especially since the German elections. Since the US’s announcement of its new tariff regime, European Small Caps have continued to outperform (and they recovered more swiftly from the post-tariff announcement sell-off).
Table 1: Key European macroeconomic indicators
| Key EU macro indicators | March 23 | March 24 | March 25 |
| ECB main refinancing rate | 3.50% | 4.50% | 2.65% |
| EU Inflation (Harmonised index of | |||
| consumer prices, yoy) | 8.30% | 2.60% | 2.50% |
| EU GDP Growth (real, yoy) | 1.20% | 0.60% | 1.40% |
| PMIs | 53.6 | 50.3 | 50.9 |
| Manufacturing PMIs | 47.3 | 46.3 | 48.6 |
| Services PMIs | 55.0 | 51.5 | 51.0 |
Source: Eurostat, S&P Global, Bloomberg.
Portfolio Performance
Over the 12-month period ended 31st March 2025, the Company returned +2.9% on a total return NAV basis and +7.0% in share price terms, outperforming its benchmark, the MSCI Europe (ex UK) Small Cap Index, which rose by +1.3% over the period. The Company has also delivered positive absolute returns in both NAV and share price terms, and has outperformed the benchmark, over the one, three, five and 10-year periods ending 31st March 2025. The Company has made annualised total returns of +8.5% on an NAV basis and +9.5% in share price terms over the 10-year period, ahead of the corresponding benchmark return of +8.1%.
Performance attribution
Year ended 31st March 2025
| % | % | |
| Contributions to total returns | ||
| Benchmark return | 1.3 | |
| Asset allocation | (0.3) | |
| Stock selection | 0.9 | |
| Gearing/cash effect | 0.8 | |
| Currency effect | (0.3) | |
| Investment Managers’ added contribution | 1.1 | |
| Portfolio return | 2.4 | |
| Management fees and other expenses | (0.9) | |
| Shares repurchased | 1.1 | |
| Tender offer | 0.3 | |
| Other effects | 0.5 | |
| Return on net assetsA | 2.9 | |
| Return on share priceA | 7.0 |
Source: JPMAM/Morningstar.
All figures are on a total return basis.
Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark.
A Alternative Performance Measure (‘APM’).
A glossary of terms and APMs is provided on pages 106 and 107 of the Annual Report.
Sector contribution
Table 2: Sector performance – Top 3 and Bottom 3 sectors contributing to performance
| Portfolio | Benchmark | Attribution | |||||
| (%) | (%) | (%) | |||||
| Average | Average | ||||||
| Sector | Weight | Return | Weight | Selection | Allocation | Total | |
| Consumer Discretionary | 11.59 | 4.59 | 8.53 | 1.25 | -0.34 | 0.91 | |
| Consumer Staples | 3.75 | -2.37 | 4.77 | 0.34 | 0.10 | 0.44 | |
| Communication Services | 7.84 | 7.88 | 4.57 | 0.41 | 0.02 | 0.43 | |
| Real Estate | 7.00 | -0.72 | 8.02 | -0.12 | -0.15 | -0.27 | |
| Materials | 5.57 | -11.97 | 7.95 | -0.65 | 0.21 | -0.44 | |
| Industrials | 31.09 | -2.27 | 25.98 | -0.67 | 0.03 | -0.64 | |
Source: JPMorgan Asset Management.
Positive Contributors to Performance
At the sector level, over the period the Company’s overweight positioning in the Consumer Discretionary sector made the most significant positive contribution to performance. Within this sector, investments in Irish housebuilder, Cairn Homes and Swedish school operator, AcadeMedia, were notable positive contributors. Cairn Home’s performance was driven by persistently high demand for housing in Ireland, supported by a strong economy, falling interest rates and a structural housing shortage. AcadeMedia is the largest private education provider in Northern Europe. We added this company to the portfolio in December 2024 due to its attractive valuation and promising return profile, which is independent of short-term macroeconomic fluctuations thanks to the multi-year nature of its services. Over the period, AcadeMedia benefited from a strong start to the school year, driven by sustained demand across all levels of education. Alongside this, the company also announced an increase to the reimbursement rates that local governments pay for each child for the next academic year. This increase was the result of a catch-up for inflation effects.
Other strongly performing sectors were Consumer Staples and Communication Services sectors. The Consumer Staples sector saw strong returns on the back of the Company’s position in AAK, a Swedish manufacturer of speciality vegetable oils and fats. This business has benefited over the last 12 months from soaring cocoa prices, which have encouraged users to switch to AAK’s cocoa butter alternatives. The Communication Services sector also did well on the back of a good performance by CTS Eventim, a German online ticketing platform that has delivered consistently strong results over the past year. CTS is benefiting from the ongoing growth in the live music industry, as major artists look to diversify their revenue streams away from declining traditional sales channels. Returns within this sector were also enhanced by an overweight in Scout 24, a digital classifieds platform operator focused on German and Austrian real estate, which consistently outperformed over the period given continued strong operational momentum.
Detractors from Performance
The Company’s largest detractors from a sectorial standpoint were Industrials, Materials and Real Estate. The underperformance of the Industrial sector was largely driven by the poor performance of holdings with exposure to Electrification or Green environmental characteristics. These stocks came under pressure following the US election, due to President Trump’s very vocal support for fossil fuels and his efforts towards subverting net zero carbon emissions targets. Names which came under pressure included France’s Nexans, a global leader in the high voltage cables needed to modernise electricity grids and connect to renewable energy sources, and Arcadis, a Dutch environmental consultancy which is also a leader in its field. Both stocks underperformed on concerns that the US administration’s anti-environmental stance will cause Green energy projects to be delayed or cancelled.
Our underweight position to both the Real Estate and Materials sectors also detracted, primarily due to stock selection decisions. In real estate, the Company’s investments in the German residential sub-sector (TAG and LEG Immobilien) underperformed on concerns that increased German government spending would fuel inflation, limiting scope for lower interest rates which would support the sector. Within the Materials sector, Hexpol was the main detractor. Hexpol is a Swedish company which is a leading producer of synthetic polymers and rubbers. It has been hurt by continued weakness in the automotive sector. There is little prospect of any near-term recovery in the sector as car makers are among the businesses most exposed to US tariff increases.
Stock contribution
Table 3: Investment performance – Top 3 and Bottom 3 investments contributing to performance
| Account | Benchmark | Attribution | |||
| (%) | (%) | (%) | |||
| Average | Average | Weight | Total | ||
| Company | Weight | Return | Weight | Difference | Effect |
| Top 3 Contributors | |||||
| Bilfinger | 2.72 | 54.29 | 0.17 | 2.55 | 1.31 |
| Unipol | 2.14 | 91.64 | 0.30 | 1.84 | 1.12 |
| Lottomatica | 1.75 | 68.40 | 0.18 | 1.57 | 1.03 |
| Bottom 3 Contributors | |||||
| Ipsos | 1.76 | -36.12 | 0.24 | 1.52 | -0.68 |
| Fugro | 1.88 | -37.54 | 0.27 | 1.61 | -0.68 |
| BFF Bank | 1.31 | -32.55 | 0.20 | 1.11 | -0.71 |
Source: JPMorgan Asset Management.
Positive Contributors to Performance
At the stock level, our most significant contributors to performance during the year were: Bilfinger, a German industrial services provider which produced strongly improving results, thereby confirming our expectation that a successful operational turnaround of the business would drive margin improvement and earnings growth. This success can be attributed to the company’s new management team, which has been implementing better risk controls and pricing mechanisms. Resultant strong cash generation provided scope for Bilfinger to initiate a share buyback programme. Alongside this, the German government’s announcement of fiscal stimulus measures provided a further boost to the stock, as the company is likely to be a direct beneficiary of the increase in public investment spending. The second, Unipol, an Italian general insurance provider (which was also one of the top contributors to performance during the 2023-24 financial year), continued its run of stellar performance. Its investments in the banking sector continued to perform, and overall insurance results were positive. Lottomatica, an Italian gaming company, was the third top contributor. This company has grown strongly on the back of its increasing online market penetration and by taking market share from its smaller, less efficient regional rivals.
Detractors from Performance
The biggest detractors from performance were: Ipsos, the world’s third-largest market research company. This French business is currently suffering from the weak performance of its US operations, which have been adversely impacted by a change of local management, and a lack of spending by the public sector and healthcare companies. The second was Fugro, a Dutch geological data specialist, is facing uncertainty due to the new US administration’s stance on offshore energy. This uncertainty has delayed investment decisions and projects across Fugro’s end markets. By the end of the financial year, we had exited our position in this stock on the view that the lack of policy clarity is likely to persist for the foreseeable future. The third, BFF Bank, an Italian bank focused on factoring, a process whereby a business sells its accounts receivable (outstanding invoices) to a third-party financial institution (a ‘factor’) at a discount, to receive immediate cash. BFF underperformed after the Bank of Italy required BFF to pause its dividend payments while they examined how they were classifying their overdue invoices. We have also now exited our position in BFF.
Portfolio Changes and Current Portfolio Positioning
Table 4: Company absolute and relative sector positioning as at 31st March 2025
Full table is provided in the Annual Report.
Over the course of the year, as geopolitical tensions and macroeconomic uncertainty have increased, we have taken the decision to reduce the Company’s various exposures to political and macro-specific risks and to focus instead on bottom-up stock selection. We are focused on targeting companies driven by idiosyncratic, stock specific factors. We expect this focus to reduce the Company’s exposure to drawdown risks related to individual political announcements and economic shocks, and to ensure performance is driven primarily by the underlying performance of its portfolio holdings. For example, over the past year we have reduced the Company’s overweight to the Industrial sector by c.5%. This was done by trimming or exiting those companies such as Nexans (a trim) and Fugro (an exit) with the greatest exposure to potentially damaging US policy announcements.
For each reduction in overweight positions there was a corresponding reduction in an underweight position. For example, the Company’s underweight exposure to Materials over the year fell from c.4% to c.1%. We achieved this by investing in companies such as AlzChem Group, a German speciality chemicals company which has been performing strongly. AlzChem produces creatine, a sports focused health supplements. It also produces munitions propellants, which are currently experiencing an exponential increase in demand because of increased defence spending by the US and European Union. We also opened a position in Buzzi, an Italian cement and construction materials company. Buzzi offered an attractive valuation at our entry point and was being supported by strong growth momentum following several positive quarters. The company should also benefit from any potential infrastructure spend within Europe and potentially from expenditure on the reconstruction of Ukraine, as and when a peace deal is finally agreed.
Following these portfolio changes, the Company’s largest sectoral overweights are Communication Services, Industrials, and Consumer Discretionary. Despite the reduction in the Company’s overweight in the Industrials sector, via the reduction and liquidation of positions in policy sensitive names such as Nexans and Fugro, the sector remains the Company’s second largest sectoral overweight. Many of the Company’s largest active positions in the Industrials sector have company-specific drivers that should help them perform regardless of the economic environment. As examples, in addition to Bilfinger, mentioned above, we would also cite our holding in Do&Co, an Austrian airline catering company, which is taking market share from struggling peers thanks to its unique ‘premium fresh cuisine’ branding. An economic slowdown is unlikely to slow the pace at which the company opens new locations and adds new airlines to its client base. Additionally, Do&Co targets airlines providing business class travel, and it has been observed that even in recessions, business air travel only declines modestly.
Conversely, the Company’s largest sectoral underweights are in Consumer Staples, Real Estate and Utilities. These underweights have been motivated either by the sector’s exposure to policy announcements or macroeconomic variables, or by a lack of differentiating stock specific alpha opportunities.
As at the end of the financial year, 31st March 2025, the Company’s NAV was geared 5.2%. This level of gearing reflects our positive view both the asset class and on our ability to add value through our investment approach.
Outlook
The current investment landscape has shifted dramatically over the last few months:
l The policies of the new US administration look set to upend the post-war world order and accepted norms in international relations between the US and both its allies and its perceived adversaries, most notably China.
l ‘America First’ policies, especially aggressive tariffs, are also likely to result in slower global growth and higher inflation.
l There has been what appears to be the biggest shift in Western defence policy for a generation or more. US Vice President Vance’s Munich speech has prompted Europe and the UK to reassess their interests and allegiances and increase defence spending.
l In response, the new German coalition government has removed borrowing constraints, unlocking hundreds of billions of euros for domestic defence and infrastructure spending.
l There is potential for a peace dividend from the eventual resolution of conflicts in Ukraine and in the Middle East.
l Draghi’s report on EU competitiveness could be another game-changer. It lays out clear recommendations on how Europe can boost its productivity and economic growth. Draghi focuses on the EU’s need to foster more investment, coordinate industrial policy and instigate rapid decision-making to increase productivity across the region. Though details around planned action are yet to be announced, the report could represent a catalyst for future reform.
As discussed above, we believe these developments will be very positive for European Small Caps over the long term. The inherent characteristics of European Small Caps (domestic focused and domestically geared), the long-term impacts of these developments (increased investment and higher productivity) and Small Caps’ current relative and absolute value versus large caps, all bode well for the sector.
We are strategically positioning the Company to capitalise on these favourable developments, as we have detailed in the Portfolio Positioning section. We have reduced the Company’s macro-level bets due to the unpredictability of the US administration, and we are instead focusing on companies with strong bottom-up investment metrics which can thrive regardless of macroeconomic events.
Alongside this, we are utilising the closed ended nature of the Company by taking a leveraged (geared) position on the asset class. As mentioned in the Current Portfolio Positioning section, the Company’s NAV was geared 5.2% at year end. The gearing level reflects our positive view of both the asset class and our ability to add value through our investment approach. Our absolute level of gearing has and will evolve as we see market conditions unfold.
Our view on the investment case for European Small Caps remains similar to what we presented in last year’s investment report. We repeat it below, updated to reflect the current investment environment.
The Case for European Small Caps
Domestic Revenue Exposure: European Small Caps, by virtue of their size and home bias, offer greater domestic exposure than larger, more globally oriented companies. These smaller companies typically dominate their domestic markets or excel in global specific niches, positioning them to benefit from increased domestic stimulus and to weather the adverse effects of tariffs. Our expertise allows us to sift through more than 1,000 companies in our investment universe to select those best positioned to benefit from current market dislocations.
Table 5: Revenue contribution by region of each index.
From the table you can see that both the JPMorgan European Discovery Trust and the MSCI Europe Small Cap (ex UK) index offer far greater domestic European revenue exposure.
| MSCI Europe | ||||
| Company | (ex UK) Small Cap | MSCI Europe | MSCI World | |
| Europe (ex UK) | 59.6% | 58.5% | 31.0% | 11.9% |
| United Kingdom | 4.8% | 4.3% | 8.7% | 3.3% |
| North America | 10.7% | 12.9% | 26.0% | 52.6% |
| Japan | 0.9% | 1.2% | 2.4% | 4.6% |
| Asia (ex Japan) | 2.1% | 1.5% | 3.1% | 4.2% |
| Emerging Markets | 21.8% | 21.7% | 28.8% | 23.3% |
Source: JPMorgan Asset Management, FactSet. Data as of 31st March 2025. Data unaudited, unofficial, for indicative purpose only and should not be relied upon for investment decisions.
Valuation Advantage: The valuations of European Small Caps are compelling, especially when compared to global markets such as the US, which until recently traded at all-time high valuations. European Small Cap valuations, coupled with their growth potential, make them an attractive investment option.
Table 6: Long term growth and current valuation measures for the European small and large cap investment universes together with relevant market indices
| Sales | Earnings | |||||
| growth | growth | P/E | ||||
| CAGR | CAGR | Cyclically | Price-to- | Price-to- | ||
| ’02-24 | ’02-24 | P/E | Adjusted | sales | book | |
| MSCI Europe (ex UK) SC | 6.3% | 8.7% | 15.8x | 15.6x | 0.9x | 1.5x |
| MSCI Europe (ex UK) | 2.6% | 5.4% | 16.0x | 22.1x | 1.7x | 2.2x |
| FTSE 100 | 3.4% | 4.5% | 12.7x | 18.7x | 1.4x | 1.9x |
| FTSE 250 | 5.0% | 6.7% | 15.1x | 12.6x | 0.9x | 1.4x |
| S&P 500 | 6.2% | 8.3% | 24.0x | 31.8x | 3.0x | 4.8x |
Source: JPMorgan Asset Management, Bloomberg. Data as of 31st March 2025. Growth rates shown in GBP. Earnings growth rates calculate at the index level using positive earnings before extraordinary items (index member companies with negative earnings before extraordinary items are excluded from the calculation with the index divisor adjusted to exclude those companies).
Performance Potential: European Small Caps are experiencing the longest period of relative underperformance compared to Large Caps in their history, suggesting that positioning is very stretched and that the sector is open to a potential rebound in relative performance.
Sensitivity to Macroeconomic Indicators: As a more domestically exposed asset class, Small Caps are more sensitive to European macroeconomic indicators than other asset classes. The current environment, which features increasing domestic stimulus, falling interest rates (which typically benefit smaller companies more) and real wage increases, should stimulate aggregate demand and benefit domestically focused Small Caps accordingly. While global trade risks pose short-term challenges, the long-term outlook is positive as these companies benefit from reshoring and a renewed national focus.
We conclude this Investment Report by revisiting a chart from last year. Over the long term, Small Caps have demonstrated enviable performance, this performance has been driven by their superior growth. We believe current valuations combined with the geopolitical environment are conducive to continued superior Small Cap performance.
Uncovering Europe’s hidden gems
As part of our ongoing commitment to refining and enhancing our investment strategies, we have significantly increased our research efforts into more illiquid stocks within the European small cap asset class. This segment is renowned for its potential to deliver multifold returns over the long term, offering unique opportunities for discerning investors. Through meticulous analysis of past winners, we have identified a compelling need to intensify our focus on smaller market capitalisations, specifically those below one billion euros. Many of these stocks often exhibit high earnings growth, superior returns, and robust cash flows, yet remain under-researched by the sell side and largely overlooked by the majority of market participants. By concentrating our efforts on these hidden gems, we aim to uncover exceptional businesses that possess the potential for asymmetric returns.
Furthermore, we are taking advantage of the closed-end nature of the Company, which allows us to invest in these illiquid opportunities without the pressure of daily redemptions, thereby enabling a long-term investment horizon. Our enhanced research approach is designed to capitalise on the inefficiencies in the market, allowing us to identify and invest in high-quality companies that are poised for substantial growth.
Jules Bloch
Jack Featherby
Jon Ingram
Portfolio Managers
18th June 2025
JPMorgan European Discovery Trust plc is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.
