Fidelity European Trust 26 November 2018
Disclosure – Non-substantive Research
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour.
The Company aims to achieve long term growth in both capital and income by predominantly investing in equities (and their related securities) of continental European companies
Fidelity European Values
Fidelity Management & Research Company
Association of Investment Companies (AIC) Sector
12 Mo Yield
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee %
Discount % (Cum Fair)
Daily Closing Price
Fidelity European Values aims for long-term capital growth via a portfolio of European equities. It is managed with a conservative stockpicking approach, aiming to identify companies with strong balance sheets, proven business models and disciplined use of capital which the manager hopes can grow their dividend regardless of the economic environment.
The portfolio will typically be comprised of between 40-50 holdings, and at the time of writing the top ten holdings make up c.40% of total assets, making its concentration quite punchy, although by no means the most concentrated in the sector. The portfolio is dominated by large caps, defined by businesses with a market cap over €10bn make up 76.8% of the holdings.
Geographical restrictions are not imposed, and the portfolio is heavily concentrated in France (26.7%), Switzerland (15.3%) and Germany (15.3%). The rest of the portfolio is made up of smaller weightings around the 5% mark. The largest sectoral exposures come from financials (17.6%), health care (17.2%) and consumer goods (16.8%).
The fund manager, Sam Morse, has more than 25 years’ experience as an investor and has produced solid results at the helm of the trust since his appointment at the start of 2011. During this period, he has delivered an NAV total return of 107.4% against a return of 68.6% from the benchmark FTSE World Europe ex UK index. The trust has failed to produce positive returns since the start of the year (-1.5%), though this is largely due to the October correction.
Sam is reasonably positive on the outlook over the near future and foresees a pick up toward the back end of 2018. However, he thinks the outlook is more clouded over the medium term – with a recession possible in 2019/20. The discount currently sits at 9.8%, having widened slightly since we looked at the trust in January last year. Over the past five years we have seen the trust’s discount vary greatly, ranging from -2.8% to close to -18%.
The trust is well run by the fund manager, Sam Morse, who has produced strong results for the past eight years. His outlook is reasonably positive for the near future, although he does see a recession on the far horizon. We agree that there are plenty of opportunities to be found in Europe, largely due to the political noise surrounding many of the countries and the impact that this has on valuations of high quality international companies who merely happen to be domiciled there. Although the current discount of 9.8% isn’t much wider than the five-year average, we it could narrow once we begin to see some of the political uncertainty subside around Brexit.
|Run by a manager with a strong track record for outperforming the benchmark and peer group
||Europe is extremely out of favour at the moment, and the outlook is far from settled
|Decent yield and dividend growth
||Discount volatility in the past has been extreme, and a bumpy ride for Europe could see that pattern repeated
|Active discount control mechanism||Highest gearing in the sector, could mean trust struggles in a downward market|