Fidelity European - a conservative approach to investing in the continent

Kate Marshall | Fri 20 July 2018

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• Sam Morse focuses on quality companies he believes are capable of consistent dividend growth
• A conservative investment approach means sector positioning does not deviate significantly from the benchmark
• While the manager has the ability to deliver good long-term returns, we feel we already have a good line-up of European funds on the Wealth 150

Our view

We view Sam Morse as a capable and experienced fund manager. We like his focus on quality companies supported by dividend growth. The manager’s fairly cautious outlook for European markets is reflected in the fund’s positioning.

Sam Morse’s benchmark-aware and naturally conservative approach means his Fidelity European Fund could hold up relatively well in unsettled markets. However, the fund could lag a rapidly rising market, particularly when some of the more economically-sensitive areas of the market are performing strongly, as seen over the past year.

The fund does not currently feature on the Wealth 150+ list of our favourite funds across the major sectors. While we believe Sam Morse has the ability to deliver good long-term returns, we feel we already have a good line-up of quality managers in the European sector with longer track records. They also adopt a more unconstrained approach to investing in the region, which we feel has the potential to deliver superior long-term returns.

Performance review

Sam Morse focuses on attractively-valued companies with sound balance sheets, which are capable of growing their dividends consistently. This has led to a focus on sectors such as healthcare and consumer goods, which are traditionally seen as more defensive.

In 2016, an improvement in investor sentiment saw a change in the market environment. Defensive companies, previously favoured by investors against a backdrop of economic uncertainty, were shunned halfway through the year in favour of more economically-sensitive areas of the market, such as financials and commodity-related industries. Less exposure to some of these sectors compared with the broader European market held back performance over the latter half of the year.

Within healthcare, shares in Novo Nordisk disappointed after the firm announced pricing challenges in the US and the loss of a large contract for one of its best-selling insulin drugs. Sam Morse is positive on the company’s longer-term prospects and has maintained the fund’s investment. The growing incidence of diabetes means demand for insulin should remain buoyant over the longer term, while the company also has an exciting pipeline of new products, according to the manager.

More recently Roche has been a top contributor to performance after the healthcare company announced positive results for two of its cancer drugs. It remains one of the fund’s largest investments.

Exposure to the energy sector contributed positively to the fund’s performance last year as the shares of companies in the sector rebounded on the back of a rising oil price. There has been a reversal in the sector’s fortunes so far this year however, and investments in Royal Dutch Shell and Total have held back returns.

Under Sam Morse’s stewardship since December 2009, the fund has grown 89.3%* compared with 84% for the FTSE World Europe ex UK Index, although please remember past performance is not a guide to future returns.

Past performance is not a guide to the future. Source: Lipper IM *to 30/04/2017

Sam Morse continues to seek companies with good long-term growth prospects, proven business models, strong balance sheets and a track record in cash generation. He favours those he believes can grow their dividends consistently, irrespective of the uncertainties in the wider economic environment.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.