- Merger creates biggest European trust
- Net assets to exceed £2.1 billion
- Reduced ongoing annual charges
Yet another investment trust has thrown in the towel with Henderson European Trust (HET) set to merge into Fidelity European Trust (FEV) via a combination which will create the ‘go-to’ UK-listed European trust with net assets north of £2.1 billion.
The deal continues the trend of consolidation in the investment trust industry seen over recent years against a backdrop of stubbornly-wide NAV (net asset value) discounts and increased pressure on underperforming or sub-scale funds.
CHAMPION OF EUROPE
Vicky Hastings, chair of Henderson European Trust, said the decision to explore a merger followed a ‘comprehensive review’ of the fund’s options triggered by the sudden departure of co-managers Tom O’Hara and Jamie Ross earlier this year.
‘The board was particularly impressed by the number and calibre of proposals received, including from the incumbent manager, Janus Henderson,’ commented Hastings.
‘However, following a full and thorough process, the board concluded a combination with Fidelity European Trust represents the best outcome for our shareholders.’
While the loss of the mandate represents a blow to Janus Henderson Investors, QuotedData’s well-followed James Carthew said the merger ‘looks like a great outcome for Henderson European shareholders and creates a true champion in this sector’.
The enlarged entity is expected to have net assets in excess of £2.1 billion, making it the largest in the European investment trust sector by a significant margin.
Henderson European shareholders will have the option to roll over their shares into Fidelity European or realise their holdings in cash, with the latter option limited to 33.3% of Henderson European shares in issue.
Fidelity European Trust’s current co-managers Sam Morse and Marcel Stotzel will continue to manage the portfolio. Morse and Stotzel focus on finding attractively valued companies, with good prospects for cash generation and dividend growth over the longer term.
Top 10 holdings as at 30 April 2025 included chip tech equipment maker ASML (ASML:AMS), food and drink giant Nestle (NESN:SWX), cosmetics colossus L’Oreal (OR:EPA) and software giant SAP (SAP:ETR).
The trust has consistently outperformed its FTSE World Europe ex-UK Index benchmark over the medium and longer term.
WHY THE MERGER MAKES SENSE
About a third of Henderson European’s shareholders have indicated they are in favour of the deal, which will create a larger company with economies of scale, increased liquidity and a new competitive fee structure which will reduce ongoing charges for shareholders.
The combined trust will seek to maintain any discount to NAV in mid-single digits ‘in normal market conditions’.
Winterflood’s Emma Bird believes the merger ‘makes good sense’, since Henderson European’s shareholders will benefit from ‘significantly’ increased scale, with associated improved secondary market liquidity and lower ongoing costs.
‘Fidelity European’s shareholders will also benefit from increased scale and reduced ongoing charges, with Fidelity’s cost contribution ensuring there is no dilution,’ explained Bird.
‘We also view it as best practice that Henderson European shareholders are being offered a cash exit. While this exit is limited to 33.3% of share capital, we note the investment proposal is largely unchanged in terms of being focused on core European equities, and Fidelity European’s shares are currently only trading at a small discount.’
