Investment trust corporate activity continues as the UK’s two largest European investment trusts propose a merger.
Fidelity European Trust (LON:FEV), the largest UK investment trust to focus on the European market, has today announced a proposed merger with the second-largest, Henderson European Trust (LON:HET). The two trusts have market caps of £1.64 billion and £587.3 million respectively, as of close of trading on 18 June – making them the largest European investment trusts in the UK by this metric.
On the morning of 19 June, as the proposed merger was announced, shares in Henderson European Trust gained 3.2% while shares in Fidelity European Trust fell 0.6%.
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“The Board of Fidelity European Trust believes this is an exciting opportunity, with compelling benefits for both sets of shareholders, to create the ‘go to trust’ for investing in Europe,” said Davina Walter, chair of Fidelity European Trust. “The proposals will result in the company being well-positioned to continue to deliver attractive returns, with new and existing shareholders benefitting from a reduced management fee and lower ongoing costs ratio.”
The merger follows the resignation of HET’s co-portfolio managers Tom O'Hara and Jamie Ross in February, with both moving to Swiss asset manager GAM Investors.
“The sudden departure of the company’s two co-portfolio managers, together with our subsequent engagement with shareholders, prompted the Board to undertake a comprehensive review aimed at maximising value for all shareholders over the long-term,” said Vicky Hastings, chair of Henderson European Trust. “Following a full and thorough process, the Board concluded that a combination with FEV represents the best outcome for our shareholders.”
How will the merged European investment trust work?
Should the proposals be approved by both investment trusts’ shareholders, HET will be wound up in order to create an enlarged FEV.
That enlarged trust would have net assets of £2.1 billion (based on 17 June 2025 assets. Shareholders would benefit from a reduced OCR and a lower tiered management rearrangement.
“This will create a larger, more liquid, and lower cost vehicle that will benefit all shareholders,” said Claire Dwyer, head of investment companies at Fidelity International. “We are pleased to manage the ‘flagship’ investment trust for European equities, with unparalleled scale and a proven investment approach.”
HET’s shareholders would have the option to rollover into FEV, or to cash in their shares. The cash option is limited to 33.3%.
Is now a good time to invest in European investment trusts?
US stocks have dominated the investing world for much of the last decade, and investment trusts could be a great means of accessing undervalued European stocks.
“Europe has some of the world’s most innovative and global leading companies,” said Marcel Stötzel, co-portfolio manager of FEV. “It continues to prove a fertile hunting ground for stock pickers like us.”
There are other macroeconomic tailwinds that could lift European stocks, particularly those in the defence sector, which have already seen large gains on expectations of increased European defence spending. This comes at a time when the still-uncertain tariff regime threatens to damage the US economy, making Europe a more appealing prospect by comparison.
As of close on 18 June, FEV traded on a discount to net asset value (NAV) of 2.77%, while HET’s discount to NAV was 8.09%.
FEV invests predominantly in continental European equities although up to 20% of its assets may be invested elsewhere. Its stock-picking approach targets companies that can increase their dividends over a three- to five-year time horizon.
“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,” added Stötzel.
