Fidelity European Accumulation

World markets remain fixated by events in Europe and a break-up of the single currency is increasingly being discussed in the press. Sam Morse, manager of the Fidelity European Fund believes all the nations in the euro zone will strive to keep it together as the consequences for any that leave, or for those that remain, would be too painful, both politically and economically.

For instance, if Greece or Italy left the euro zone, imports such as food and fuel would become much less affordable in (presumably devalued) drachma or lira. Individuals and companies owing money on euro loans would see their debts jump in size overnight. When countries joined the euro, no-one planned or expected they would leave, so the technical and legal costs would be huge. For these reasons he believes austerity measures are the lesser of two evils and the euro zone is likely to stay together. However, just in case there is a break-up, he has been examining the potential impact it would have on each company he holds - as well as many he doesn't.

With the investment landscape dominated by economic events, managers like Sam Morse who pride themselves on their stock picking skills face a challenging environment. Volatility is high, as is the correlation between individual stocks - in other words shares prices are tending to move up and down in unison rather than show a range of returns based on the prospects of individual companies.

Sam Morse aims to beat his peers by selecting stocks that will outperform over a three to five-year view, rather than making timing decisions based around which sectors to be in at a particular time. He believes sector timing is exceptionally difficult as it relies on hard-to-predict economic factors. As such his fund contains a relatively stable mix of companies, including higher risk smaller companies, across a variety of sectors, which he believes can thrive in both good times and bad.

Top performing stocks within the fund this year include Hugo Boss, whose new management have improved margins, and Nestle, whose combination of established premium brands in the West and successful expansion into emerging markets has driven growth. Less successful has been the fund's financials exposure with Societe Generale and BNP Paribas in particular weighing on returns.

Since taking over the fund in January 2010, he has reduced the number of holdings in the portfolio from about 100 to around 60, so each has a greater impact on performance - though it increases risk too. Overall this has had a positive effect and under his custody the fund has outperformed in relative terms and has held up better than its peers during the recent volatility.

We believe Sam Morse's consistent approach should mean the fund is capable of outperforming over the longer term. In our opinion the fund represents a respectable choice for long-term exposure to European equities, though it is not part of our Wealth 150 list of favourite funds across the major sectors. We would like to see a more significant and sustained period of outperformance before considering it further.