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Fidelity European Values – how a focus on dividend growers boosted performance

Sam Morse is more cautious than a lot of other managers investing in Europe. Find out what this means for the trust and how we expect it to perform.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • A trust with a more conservative approach to investing in European companies
  • Sam Morse looks for companies he thinks can grow their dividends sustainably over the long run
  • We think the trust has good long-term potential and could form the foundation of the European part of a portfolio

We think Sam Morse is a capable and experienced fund manager. We like his focus on quality companies with the ability to make plenty of cash. This could help support a healthy and growing dividend – a key part of what he looks for in a company.

Morse is naturally conservative in the way he runs Fidelity European Values and we view it as a mainstream trust in the Europe sector. The way it's invested means it might not perform significantly different from the broader European stock market at times. But some gearing (borrowing money to invest) has helped boost performance over the long term.

At the time of writing, gearing is 7%. This may change over time and it increases risk, as it enhances losses when markets fall.

There are other managers in this sector with greater flexibility to invest differently to the broader market. This could help them perform better over prolonged periods, though the reverse is also true. So far, Morse has done a good job for investors since taking over the trust in January 2011, and we think he has the ability to deliver good returns for investors.

A cautious approach to investing in Europe

Morse has used the same disciplined investment process for many years.

He focuses on larger companies he thinks will grow consistently and offer some stability, rather than those that deliver shorter bursts of stronger growth, but the potential for bigger setbacks. He also likes companies he thinks will grow their dividends at a steady pace. It's often a sign they're in good financial health, and a growing dividend can be a driver of share price growth over the long run.

The amount Morse invests in each sector doesn't differ too much from the broader European stock market. This means performance can be similar over shorter periods. But it could help deliver outperformance over the long run, without significant levels of volatility compared with other trusts in the same sector. There are no guarantees though.

Since he took over the trust, it's grown 169.4%* compared with 96.5% for the FTSE World Europe ex UK Index. Past performance isn't a guide to future returns.

Annual percentage growth
Jun 14 -
Jun 15
Jun 15 -
Jun 16
Jun 16 -
Jun 17
Jun 17 -
Jun 18
Jun 18 -
Jun 19
Fidelity European Values 12.9% -4.2% 35.8% 4.7% 15.3%
FTSE World Europe ex UK 1.1% 6.0% 29.0% 2.5% 7.9%

Past performance is not a guide to the future. Source: *Lipper IM to 30/06/2019

Companies that fit Morse's criteria include Nestlé, one of the world's best-known food and drinks businesses. It sells products that consumers buy again and again, no matter what's going on in the broader economy. It's helped the business grow steadily, and supported a rising dividend, over the years. It's currently the trust's biggest investment and has performed well over the past year. Morse remains positive about its longer-term potential, especially in areas like coffee, water and nutrition.

An investment in Deutsche Boerse also recently did well. The German trading platform recently released some good results and has made good progress in cutting costs. It has also generated plenty of cash, which could support a growing dividend and give the company flexibility to develop and create innovative new products.

Morse also has the ability to take 'short' positions, which means he could make a profit if share prices fall. This use of derivatives is a higher-risk approach. These investments only make up a relatively small part of the trust though.

Manager outlook

Sentiment towards Europe has been poor for a number of years. The Eurozone crisis in 2012, worries about Brexit, the potential for a trade dispute with the US, and Italy's fragile banking sector have all played their part.

Despite some shorter-term setbacks, European stock markets have generally performed well. But as share prices have risen, Morse doesn't think there's as much value on offer as there used to be. In some cases, share prices look high compared with their future growth prospects and no longer have as much room to rise from current levels.

As a result, Morse has reduced the number of investments in the trust, to focus on those he thinks have the most potential for growth. This means each one can have a greater impact on performance, though this is a higher-risk approach.

More about this Trust, including charges

Key Information Document

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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