Investors in the trust can choose to buy the income share class, which has a current yield of 3.5 per cent.
The managers in the trust have long had an exposure to the banking sector. That is a trade which is now more popular with investors as a result of revised inflation and growth expectations.
Higher inflation is generally good for the shares of banks, because it pushes bond yields higher. For regulatory reasons, banks are required to hold a significant slug of their capital in liquid assets such as bonds. Rising bond yields mean that banks can earn more return from that slug of their assets.
But Buckingham and his colleagues have had exposure to the sector for a much longer period.
Last year, the team liked the well-capitalised Scandinavian, French and Benelux based banks, like BNP Paribas and ING. This year, the focus has shifted towards ‘higher risk’ names – selective Spanish, Italian and Swiss banks – which offer diversification and sustainable dividends. Credit Suisse, for example, now has fewer capital concerns and improving operational trends. The portfolio retains an overweight in the real estate and utility sectors, though to a lesser degree (reduced to 4 per cent and 3 per cent respectively), where there are a number of attractive companies with high and sustainable dividend yields.’
In contrast, the managers are somewhat less interested in the pharmaceutical sector, where he believes valuations have long been attractive.
The managers’ of the trust are eager to emphasise that they are largely ‘agnostic’ about the myriad political uncertainties that presently plague the economic bloc.
The JP Morgan European Investment Trust’s income share class has returned 31 per cent over the past year. It trades at a discount to net assets of 10 per cent.