Fidelity European - looking for dividend growth
Kate Marshall | Fri 19 July 2019
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- A fund 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
- The fund's not on the Wealth 50, though we think it has good long-term potential
Our view
We think Sam Morse is a capable and experienced fund manager. We like his focus on quality companies with the potential 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 a cautious investor. He runs this fund in way that means we don't think it'll perform significantly different to the broader European stock market, especially over shorter periods. We view it as a more conservative way to invest in European companies.
The fund isn't currently on the Wealth 50 list of our favourite funds. We think Morse has the ability to deliver good returns for investors. 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, which offers more potential to perform better over prolonged periods.
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. Remember that dividends are variable and not guaranteed.
The amount Morse invests in each sector doesn't differ too much from the broader European stock market. This means performance is likely to be similar over shorter periods. But he thinks it could help deliver modest outperformance over the long run, without significant levels of volatility. There are no guarantees though.
Since he took over the fund in December 2009, it's grown 144.5%* compared with 111.9% for the FTSE World Europe ex UK Index, the fund's benchmark. 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 | 7.2% | 6.2% | 26.6% | 7.4% | 10.9% |
| 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 support a rising dividend, over the years. It's been one of the fund's strongest performers over the past year and Morse remains positive about its longer-term potential, especially in areas like coffee, water and nutrition.
An investment in Deutsche Boerse also 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 has supported a growing dividend and gives the company flexibility to develop and create innovative new products.
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 fund, 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.
Please note the manager can use derivatives, which adds risk.