Fidelity European - stability in uncertainty
Kate Marshall | Wed 13 February 2019
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- Sam Morse uses a conservative approach to manage this fund
- This has helped performance during times of uncertainty
- We think the fund's a reasonable choice in this sector, but it's not currently on the Wealth 50
Our view
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 the Fidelity European Fund. The amount he invests in each country and sector doesn't differ too much from the broader European stock market, so we don't expect the fund to perform significantly different. We also expect it to hold up well when markets are weaker, but not to keep up when they're rising quickly. Though of course all investments can go down as well as up in value so you may not get back what you invest.
The fund isn't currently on the Wealth 50 list of our favourite funds. We think the manager has the ability to deliver good returns for investors over the long run. But we already have a good line-up of quality managers with longer track records in the Europe sector on the list. They also have greater flexibility to invest differently to the broader market, so we think they have more potential to perform better over longer periods.
A fund for tougher times
Like most major stock markets, the FTSE World Europe ex UK Index fell over the past year. Ongoing trade wars, Brexit-related uncertainty and concerns over the rise of populist governments were partly to blame. The European Central Bank ended Quantitative Easing, which supported share prices for several years, at the end of 2018 and that didn't help either.
This made it a difficult year for all funds in the Europe sector. Most lost money and the average fund fell 10.5%*. But Fidelity European held up much better. It still lost 2.6%, but this puts it in a stronger position when markets recover. Past performance isn't a guide to future returns.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
|
Jan 14 -
Jan 15 |
Jan 15 -
Jan 16 |
Jan 16 -
Jan 17 |
Jan 17 -
Jan 18 |
Jan 18 -
Jan 19 |
|
| Fidelity European | 12.1% | -1.8% | 21.4% | 18.2% | -2.6% |
| FTSE World Europe ex UK | 7.5% | -2.1% | 24.4% | 18.2% | -7.8% |
| IA Europe ex UK | 6.8% | 0.1% | 24.2% | 17.4% | -10.5% |
Past performance is not a guide to the future. Source: *Lipper IM to 31/01/2018
The manager's focus on larger companies that are expected to be more stable and grow relatively consistently helped in this weaker environment. This includes Roche and Nestle.
Shares in Roche got an extra boost after the healthcare company announced higher sales of new drugs, including Ocrevus for multiple sclerosis. Its expansion into the Chinese market is also going well. Nestle did well after the food and drinks business said it's making good progress in high-growth areas such as coffee, water and nutrition.
Overall, investments in healthcare companies remain an important part of the fund. Sanofi and Novo Nordisk are two of its largest holdings. Morse thinks Novo Nordisk has a pipeline of drugs with great growth potential, especially those that meet the growing demand for insulin.
He won't get it right every time though. An investment in Fresenius Medical Care recently held back performance. It cut its sales target because of slower growth in its dialysis services in North America, which is its largest market. Morse thinks the company will benefit as the dialysis market is expected to grow over the longer term.
The manager's also positive about the prospects for some financials companies like Deutsche Boerse, the stock exchange operator. He views it as a solid company because of its healthy finances and stable earnings. It could also benefit from increasing market volatility – this often leads people to trade more, which incurs costs that are paid to the company.
Please note this fund can use derivatives which can add risk.