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EAT (European Assets Trust) cuts dividend due to NAV decline

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richfool
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EAT (European Assets Trust) cuts dividend due to NAV decline

#192405

Postby richfool » January 10th, 2019, 2:00 pm

European Assets' dividend falls 22% due to NAV decline:
European Assets Trust (EAT) has announced a 22.3 per cent fall in its dividend following a tough year for its investment performance. The trust, which is managed by BMO Global Asset Management’s Sam Cosh, pays out 6 per cent of its year end net asset value (NAV) as a dividend every year so when this falls the trust's dividend is also affected. The dividend is funded by the payouts the trust receives from its underlying holdings but also from capital.

https://www.investorschronicle.co.uk/fu ... v-decline/

This is something I have been alert to where IT's subsidise their dividends from capital.

I sold out of EAT back in September, after noting John Baron's comments and to help rationalise/reduce the number of IT's I hold.

Darka
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Re: EAT (European Assets Trust) cuts dividend due to NAV decline

#192407

Postby Darka » January 10th, 2019, 2:05 pm

Ouch - I was going to look at EAT next week for a potential purchase, don't think I'll bother now...

how many other IT's pay the dividend from capital, presume they have to state this somewhere?

<edit>Found it, obviously it's on the aic website</edit>

monabri
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Re: EAT (European Assets Trust) cuts dividend due to NAV decline

#192422

Postby monabri » January 10th, 2019, 2:45 pm

Having just topped up last week...... (at 95.8p) ... :roll:

"European Assets has linked its dividend payments to its NAV since 2001 and Numis says over the past three years 10 other trusts have implemented policies linking dividends to NAV" - as listed in Richfool's link above.

The Trust's board said:-

"At this stage we would argue that these stocks now look excessively cheap, discounting a somewhat more severe economic scenario than we would envisage. In aggregate our companies are good businesses, with limited debt, and are attractively priced. This should stand us in good stead for the year to come."

Monica Tepes, investment companies research director at broker FinnCap:-

"“This has helped enormously as its [yield] is significantly above the market yield," she said. "The fall is only temporarily a problem, and to a limited extent given the high level the dividend is set at. For new investors, a 6 per cent-plus yield is still very attractive and existing investors are still lacking alternatives on a higher yield."

richfool
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Re: EAT (European Assets Trust) cuts dividend due to NAV decline

#192430

Postby richfool » January 10th, 2019, 3:14 pm

Off the top of my head, I believe JPGI, JAI, and STS also subsidise dividends from capital. Noted there are others.

I hold JPGI of the above.

(Tickers: JPGI - JP Morgan Global G&I trust, JAI - JP Morgan Asian Income, STS - Securities Trust of Scotland).

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Re: EAT (European Assets Trust) cuts dividend due to NAV decline

#192456

Postby Dod101 » January 10th, 2019, 4:20 pm

Just because ITs pay all or part of a dividend from realised capital does not mean that because NAV falls, they automatically have to cut their dividend. If they have sufficient realised capital gains they can continue to pay all or part of a dividend from capital if the Directors agree.

EAT though, has stated that it will pay 6% of its NAV (obviously only if they have sufficient realised capital reserves)as a dividend. The NAV can increase but this last year has fallen so a cut in the dividend is automatic. As usual for an income seeker it is better surely to seek a more conservative approach, that is one without such a percentage undertaking or better, one which pays out only from revenue and/or revenue reserves, in the old fashioned way.

Dod

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Re: EAT (European Assets Trust) cuts dividend due to NAV decline

#192468

Postby monabri » January 10th, 2019, 4:34 pm

Here's the list from the article......11 listed.

I hold EAT and JP Morgan Asia ( JAI) and JP Morgan Jap Smaller (JPS). The latter being a John Baron selection in one or more of his portfolios. I don' t think I'm being too greedy with a 4% yield?

Code: Select all

Fund                                | Yield (% of NAV)                      | New policy announced
Lazard World Trust                  |                                   3.5 | Jun-16             
JPMorgan Global Growth & Income     |                                     4 | Jul-16             
International Biotechnology         |                                     4 | Sep-16             
Baring Emerging Europe              | Dividends supplemented with 1% of NAV | Dec-16             
JPMorgan Asia                       |                                     4 | Dec-16             
BB Healthcare                       |                                   3.5 | Dec-16             
Martin Currie Asia Unconstrained    | Dividends supplemented with 2% of NAV | Apr-17             
Lazard World Trust                  |                                     6 | Apr-18             
Montanaro UK Smaller Companies      |                                     4 | Jul-18             
JPMorgan Japanese Smaller Companies |                                     4 | Jun-18             
BlackRock Latin American            |                                     5 | Mar-18             

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Re: EAT (European Assets Trust) cuts dividend due to NAV decline

#192579

Postby Avantegarde » January 10th, 2019, 9:46 pm

How very interesting. John Baron had promoted his inclusion of this trust in his portfolios quite strongly, as a good performer with reliable dividends. Has he changed his stance? The wider point is very instructive. There has been a small trend in the past two years or so for some ITs to start paying higher dividends out of capital. Many of the JP Morgan stable do so. I think I can spot a chicken coming home to roost.

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Re: EAT (European Assets Trust) cuts dividend due to NAV decline

#192581

Postby Lootman » January 10th, 2019, 9:57 pm

Avantegarde wrote:How very interesting. John Baron had promoted his inclusion of this trust in his portfolios quite strongly, as a good performer with reliable dividends. Has he changed his stance? The wider point is very instructive. There has been a small trend in the past two years or so for some ITs to start paying higher dividends out of capital. Many of the JP Morgan stable do so. I think I can spot a chicken coming home to roost.

I rejected EAT long ago because of this policy. In a sense it should not ultimately affect the total return. After all, as long as it grows at a faster rate than the commitment to disgorge its capital, then you will get by.

But I don't like such liabilities and restrictions being placed on a fund. And I particularly dislike the premise here, i.e. that potential investors are so stupid that they will choose one IT in this space over the others because of the headline yield. And there has been such a fixation with yield in the last decade or so, because of the collapse of interest rates, that some fund managers might be tempted to play the yield card. And that is bad enough when it means that a fund limits itself to shares that pay a high dividend. But it's even worse when there is a planned plundering of the fund's asset value.

I did get caught out with one of my own holdings, however. International Biotechnology Trust (IBT) changed a while ago to pay out a high dividend that is untypical in the biotech space. I was annoyed at having a tax event imposed upon me in that way. But even so IBT still has to obey the UK rules about what it can and cannot pay out. EAT is domiciled overseas and so can play unlimited games like this, which makes it a no-touch for me.

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Re: EAT (European Assets Trust) cuts dividend due to NAV decline

#192589

Postby monabri » January 10th, 2019, 10:31 pm

Lootman wrote:EAT is domiciled overseas and so can play unlimited games like this, which makes it a no-touch for me.


Soon to be domiciled in the UK....(approved today as it happens! )

https://www.londonstockexchange.com/exc ... 30424.html

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Re: EAT (European Assets Trust) cuts dividend due to NAV decline

#192594

Postby richfool » January 10th, 2019, 11:07 pm

Avantegarde wrote:How very interesting. John Baron had promoted his inclusion of this trust in his portfolios quite strongly, as a good performer with reliable dividends. Has he changed his stance? The wider point is very instructive. There has been a small trend in the past two years or so for some ITs to start paying higher dividends out of capital. Many of the JP Morgan stable do so. I think I can spot a chicken coming home to roost.

Avantegarde, John Baron sold EAT back in August 2018. This is from his column in Sept 2018:
During the second half of August, both portfolios sold European Assets Trust (EAT) while the Income portfolio sold Aberdeen Smaller Companies Income (ASCI). Their replacements were BlackRock Throgmorton Trust (THRG) in the Growth portfolio, and Invesco Perpetual UK Smaller Companies (IPU) and SQN Asset Finance Income Fund (SQN) in the Income portfolio. Prices achieved were £1.21, £2.85, £5.43, £4.94 and £0.93, respectively.

EAT’s close discount to NAV and concern about growth rates relative to market ratings suggested caution.
Meanwhile, ASCI had performed well since its introduction a year ago when on a 23 per cent discount, and now only yielded 2.5 per cent. The time had come to take profits.

https://www.investorschronicle.co.uk/ti ... -the-dawn/

I sold my holding of EAT partly in response to the above, partly to reduce the number of IT holdings I had and partly to reduce my European exposure.

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Re: EAT (European Assets Trust) cuts dividend due to NAV decline

#192597

Postby Dod101 » January 10th, 2019, 11:29 pm

RIT pays most of its dividend from realised capital gains and no-one seems to have mentioned it. Scottish Mortgage also pays most of its dividend from capital so it is not very unusual. It is because EAT committed itself to 6% of NAV that its problem arises.

Dod

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Re: EAT (European Assets Trust) cuts dividend due to NAV decline

#192623

Postby OZYU » January 11th, 2019, 8:18 am

EAT will be a PLC from mid March 2019. It will be eligible to be in indices. The portfolio is crammed with good quality small European Cos . The manager knows that field of investment well. IMHO, on a long term view, a good time to get a slice because sentiment it at a low ebb, for reasons we all know.

My wife holds it in her ISA, does her own thing, and has done a rare top up recently, I noticed.

Generally these ITs which are growth oriented but distribute are fine as long as one does not have too many. Across our five portfolios we hold three, IBT, IPU and EAT. No plans to change.

Ozyu

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Re: EAT (European Assets Trust) cuts dividend due to NAV decline

#193074

Postby tramrider » January 12th, 2019, 5:53 pm

Dod101 wrote: It is because EAT committed itself to 6% of NAV that its problem arises.

Dod


I think this is only a problem if you demand a smoothly increasing dividend year on year. If you are prepared to accept a more 'jerky' dividend payout, albeit rising steadily along with capital NAV in the longer term, it is not as much of a problem as with some dubious single HYP shares which stop and start dividends completely.

If one wants a growth IT and to extract an income from it, often there is a problem that the total return might be 8% pa but the free dividends only 1 or 2%. In order to get a reasonable income of say 4%, it would be necessary for the individual holder to sell an amount of capital each year, incurring transaction costs. ITs like JAI (JP Morgan Asian - 5 year total return 92%), JPGI (JPMorgan Global Growth & Income - 5 year total return 77%) and IBT (International Biotechnology - 5 year total return 123%) do this for you at no apparent cost. They aim to provide a 'modest' 4% pa out of their total return, but even on this 'safer' yield, JAI had to reduce the actual dividend this quarter from 3.90p to 3.70p to follow its NAV, after paying 4.00p in this quarter last year. I was grateful for the 4.00p and 3.90p quarterly dividends while they lasted but the drop to 3.70p is not too painful and may recover in a few more quarters.

Perhaps EAT's 6% yield was an overly optimistic choice (5 year total return 36% and 10 year total return 325%), but it invests in the smaller companies area which tend to give larger episodic growth. However, much of mainland Europe seems to have been hit this year.

If the dividend jerkiness is a worry, you just need a bigger income reserve, as recommended by our sage Luniversal. :)

Happy New Year!
Tramrider

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Re: EAT (European Assets Trust) cuts dividend due to NAV decline

#193090

Postby Dod101 » January 12th, 2019, 7:28 pm

OZYU wrote:EAT will be a PLC from mid March 2019. It will be eligible to be in indices.


Interesting. I knew very little of EAT. Although they say they will, I wonder if they will maintain the undertaking to pay out 6% of NAV in the longer term because even if it is not an issue at the moment, they will need to have realised capital gains to cover this payout once they become a mainstream UK IT. I will keep an eye on EAT in its new UK registered guise and maybe buy into it in due course.

I do not though much like the implications of the undertaking because it does introduce an element not usually found in ITs and is one reason why I have not looked at it very closely in the past.

It is though, nice to see a company 'migrating to the UK, especially one investing in Europe.

Dod

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EAT (European Assets Trust) Migration

#197664

Postby monabri » January 30th, 2019, 5:52 pm

OZYU wrote:EAT will be a PLC from mid March 2019.
Ozyu



https://www.londonstockexchange.com/exc ... 48710.html

Subject to satisfaction or waiver of those conditions, the Migration is expected to become effective on 16 March 2019. The EAT NV shares will be delisted from Euronext Amsterdam two trading days before the Effective Date. The Board of EAT NV will apply to the Financial Conduct Authority for the cancellation of the standard listing of EAT NV on the Official List, and to the London Stock Exchange to cancel the admission to trading of its shares on the Main Market, effective as of the first trading day after the Effective Date, expected to be 18 March 2019.

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Re: EAT (European Assets Trust) cuts dividend due to NAV decline

#202878

Postby monabri » February 21st, 2019, 11:41 am

https://www.londonstockexchange.com/exc ... 57500.html

"European Assets Trust NV said Thursday it expects its migration to the UK to complete in mid-March following legal approval for the move from officials in the Netherlands and UK."


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