What does Henderson European Trust's impending merger with Fidelity European Trust mean for you, given the departure of its co-portfolio managers earlier this year?
A merger proposal from the two biggest European investment trusts in the UK is causing investment trust corporate activity to continue.
A proposed merger between the largest UK investment trust with a focus on the European market, Fidelity European Trust (LON:FEV), and the second-largest, Henderson European Trust (LON:HET), was announced today. By market capitalization, the two trusts are the biggest European investment trusts in the UK, with respective market caps of 1 point 64 billion and 587 point 3 million as of the close of trading on June 18.
As the proposed merger was announced on the morning of June 19, Henderson European Trust's stock increased 3 points, while Fidelity European Trust's stock fell 0.6 points.
"The Board of Fidelity European Trust thinks this is a great chance to establish the go-to trust for investing in Europe, with strong advantages for both groups of shareholders," stated Davina Walter, the trust's chair. "The company will be in a strong position to continue generating attractive returns as a result of the proposals, and both new and current shareholders will gain from a lower management fee and ongoing costs ratio.
The merger comes after co-portfolio managers Jamie Ross and Tom O'Hara of HETs resigned in February and joined Swiss asset manager GAM Investors.
Vicky Hastings, chair of Henderson European Trust, stated, "The Board undertook a thorough review aimed at maximising value for all shareholders over the long-term as a result of the abrupt departure of the company's two co-portfolio managers and our subsequent engagement with shareholders." "The Board came to the conclusion that a combination with FEV represents the best outcome for our shareholders after a comprehensive and exhaustive process.
How is the combined European investment trust going to operate?
HET will be wound up to produce an increased FEV if the proposals are accepted by the shareholders of both investment trusts.
Using assets as of June 17, 2025, the enlarged trust would have net assets of £2.01 billion. A lower tiered management reorganization and a lower OCR would be advantageous to shareholders.
Claire Dwyer, head of investment companies at Fidelity International, stated, "This will create a larger, more liquid, and lower cost vehicle that will benefit all shareholders." "We are proud to oversee the premier investment trust for European stocks, which has an unmatched scale and a tried-and-true investment strategy.
HETs shareholders would be able to cash in their shares or rollover into FEV. 33.3% is the maximum amount that can be paid in cash.
Is it wise to make investments in European investment trusts at this time?
Investment trusts may be a fantastic way to gain access to cheap European stocks, as US stocks have dominated the market for the majority of the past ten years.
FEV co-portfolio manager Terry Tanaka stated, "Europe has some of the world's most innovative and global leading companies." Stock pickers like us continue to find it to be a rich hunting ground.
Other macroeconomic tailwinds have the potential to boost European stocks, especially those in the defense industry, which has already experienced significant gains due to anticipations of higher defense spending in Europe. This occurs at a time when the US economy is at risk of being harmed by the still-uncertain tariff regime, making Europe a more alluring option in contrast.
At the close of business on June 18, FEV was trading at a 2point 77 percent discount to net asset value (NAV), whereas HET was trading at an 8point 09 percent discount.
While up to 20% of its assets may be invested elsewhere, FEV primarily invests in continental European stocks. Its stock selection strategy focuses on businesses that have the potential to raise dividends over a three- to five-year period.
Furthermore, Stotzel stated, "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."
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