Two largest European equities trusts to merge

Fidelity European Trust (FEV) and Henderson European Trust (HET) are merging, creating a £2.1 billion European investment vehicle.

At £1.645 billion and £587 million in assets respectively, they are currently the two largest European equity investment trusts.

• Invest with ii: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

The announcement comes after the shock resignation of Henderson European managers Tom O’Hara and Jamie Ross in January this year, who left to join Swiss asset manager GAM.

Both trusts are strong performers. Fidelity European has returned 75% over five years compared with 60% for the typical European trust and 63% for the FTSE World Europe ex UK index. Meanwhile, Henderson European is up 79% over five years.

The combined entity will continue to be managed by Fidelity in the same way as Fidelity European Trust. Managers Sam Morse and Marcel Stötzel will continue to manage the portfolio.

• Europe’s answer to the Magnificent Seven – at cheaper prices
• The company metric that beats the market in Europe
• Investors optimistic again, but not for all markets

The same team manages the open-ended Fidelity European fund, which is one of our Super 60 fund ideas.

It follows a “quality growth” approach, with a particular focus on dividend growth as a measure of a good investment. The largest positions are ASML, Roche and SAP.

Morse said: “I am really excited by this opportunity to take Fidelity European Trust to the next level and create the true ‘flagship’ investment trust for investing in European equities. By employing a consistent investment approach, we are confident that we will continue to provide shareholders with steady outperformance of the benchmark.”

Stötzel said: “This merger represents an excellent chance to create the go-to investment trust for European equities. Our investment style focuses on finding companies with good prospects for cash generation and dividend growth over the longer term, at attractive valuations, with positioning driven by opportunities at the individual stock level rather than macro developments. Europe has some of the world’s most innovative and global leading companies – it continues to prove a fertile hunting ground for stock pickers like us.”

Shareholders of the enlarged FEV will benefit from cost efficiencies including a lower fee. The management fee will be reduced to: 0.70% on the first £400 million of assets; 0.65% on assets between £400 million and £1.4 billion; and 0.55% on assets in excess of £1.4 billion.

• How diversified is the global stock market?
• Should fund managers reveal their 'skin in the game'?

HET will be wound up and shareholders will have the option to rollover into FEV, or they can elect to receive cash for their HET shares. The cash option is limited to 33.3% of their shares.

Vicky Hastings, chair of Henderson European Trust, said: “The sudden departure of the company’s two co-portfolio managers, together with our subsequent engagement with shareholders, prompted the board to undertake a comprehensive review aimed at maximising value for all shareholders over the long term.

“The process was well informed by shareholder feedback, which made it clear that, given the material turn of events, all viable options should be considered.”