JPMorgan European Growth & Income (JEGI) 106.5p

Market cap: £465 million

The pound is currently trading close to two-year highs against the euro, and the interest rate differential between the UK and Europe is set to widen as the ECB (European Central Bank) begins easing this month.

Not only is this great news for holiday makers traveling to the continent this summer, it is also a blessing for investors looking to buy top-grade European stocks as their pound goes further these days.

The MSCI Europe ex-UK, like many other indices, may be making new highs this month, but despite the abundance of high-quality large-caps stocks it has significantly lagged the US S&P 500 over one, three and five years.

One investment trust which has beaten the benchmark consistently over all three time periods is JPMorgan European Growth & Income (JEGI), part of a stable of funds run by the US manager using the same approach which includes a global version, a UK small-cap version and an Asian version.

In the year to the end of March, the trust’s total return on net assets was 16.8% against 12.7% for the index thanks to superior stock selection in what was a tricky environment with the ongoing war in Ukraine and now conflict in the Middle East.

As well as delivering ‘the best of capital growth’, the trust offers a consistent stream of income through its commitment to distribute 4% of its starting NAV (net asset value) to shareholders each year in quarterly payments.

For the year to March 2024 that equated to a dividend of 4.2p per share, while for the year to next March the dividend will be 4.8p in line with the increase in NAV over the last 12 months.

The managers take a balanced approach to the portfolio, picking stocks on a bottom-up basis with a strong focus on valuation, quality and positive momentum and less of a focus on yield despite the enhanced income policy.

As co-manager Tim Lewis explained to Shares, whether the overall level of yield on the portfolio is 3% or 5% doesn’t matter as dividends are paid out of capital gains meaning there is no need to chase high-yielding stocks.

To illustrate this point, at the end of April the top five stocks – representing over 20% of the portfolio – were ASML (ASML:AMS), Nestle (NESN:SWX), Novartis (NOVN:SWX), Novo Nordisk (NOVO-B:CPH) and SAP (SAP:ETR), none of which yield much more than 3%.

The trust currently trades at discount to NAV of roughly 11% and has an ongoing charge of 0.66% per year.

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