A strong track record and a new high dividend policy: The European Smaller Companies Trust

ESCT has a strong track record and a new high dividend policy…by Alan Ray

Overview

The European Smaller Companies Trust (ESCT) is a European small-cap specialist, with a bias to companies with a market cap of less than €1bn. The manager’s approach can be viewed through four main categories: early-stage growth, quality growth, mature, and turnaround. This means that ESCT is not wed to a particular investment style, such as growth or value, with the manager taking the view that in smaller companies returns can be generated in a variety of ways. This has translated to a strong long- and short-term Performance record, with ESCT outperforming both its benchmark and peer over one and five years.

On 15/10/2025, European Assets (EAT) combined c. £300m of assets into ESCT. For existing ESCT holders, the investment strategy and manager are unchanged, the management fee is slightly reduced, and there will be a new quarterly Dividend policy paying an annual distribution of 5% of NAV.

EAT’s investment strategy was, in contrast, more skewed to mid caps and focussed mainly on the ‘quality growth’ style, so new ESCT shareholders can expect a broader portfolio from a style perspective, with a greater element of true small caps. The new Dividend policy is very similar to EAT, with a 5% distribution rate rather than 6%. Charges are significantly lower. EAT holders who own shares through the CT Savings Plan must arrange for their shares to be transferred to another account by 14/01/2026, or their shares will automatically be sold. Details can be found here.

ESCT currently trades at a c. 7% Discount and is Geared 6%. The current dividend yield, c.2.2%, will rise to above 5% once the new dividend policy comes into effect after the November 2025 AGM.

Analyst’s View

ESCT has been through a busy year from a corporate perspective. First, an activist investor’s radical proposals to change the investment mandate were rejected by shareholders. This was followed by a tender offer returning c. £350m to shareholders, and most recently, European Assets (EAT) has combined c. £300m into ESCT. In the circumstances, it would be easy to lose sight of ESCT’s strong relative and absolute performance both in the short and long term. A point we have made before is that ESCT has outperformed both its small-cap benchmark and the large-cap equivalent during a period where large caps had all the attention.

Once approved by shareholders at November’s AGM, the new dividend policy brings a new dimension to owning the trust, with a dividend of at least 5% of the closing NAV of each financial year. This is an increasingly common form of dividend, and one that EAT’s shareholders are very familiar with. Those less familiar can read an article we wrote recently on the subject. In our view, the policy increases the probability over time that ESCT’s discount will narrow, as it makes it more accessible to investors with an income goal, and even those shareholders not focussed on income may benefit from the resulting discount narrowing. Again, the most important point is the outstanding track record, but in the list of ‘things that make an investment trust unique’, ESCT ticks a great many of the boxes.

Bull

• A strong track record in an under-owned asset class
• Many positive trends in Europe are best accessed through small caps
• Revised dividend policy puts ESCT on the radar for a new type of investor

Bear

• Small caps can be more risky and volatile than large caps
• The macro picture for Europe remains uninspiring
• ESCT uses gearing, which can amplify losses as well as gains

 
See the full research on ESCT here >
 

 

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by European Smaller Companies. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.