Over the course of 2014 Fidelity European Values generated a total return on net assets of 5.1% – well ahead of the 0.2% return generated by the FTSE All-World Europe ex UK Index, its benchmark. Shareholders did even better as the fund’s discount narrowed from 7.9% to 4.6%, pushing the return to shareholders up to 8.7%. Sterling strength vs. the Euro held back the return. The dividend is being increased from 2.98p to 3.1p (4%) and they intend to pay a special dividend of 054p, funded from a return of French withholding tax.
In December shareholders approved a change in the investment remit to allow up to 20% of the fund to be invested in the UK. The Board now plans to ask shareholders to allow them to hold shares bought back in treasury and to allow them to reissue these at a premium – this is something many other Boards have already done and, by reissuing them only at a premium, the process should be beneficial to the company’s net asset value.
The manager’s statement says “Novo-Nordisk, the leading diabetes care company, the two regulated Spanish utilities, and Iliad, a French telecoms company, all enjoyed strong outperformance over the year. Iliad subsequently gave up some of its gains when it announced that it was no longer planning to consolidate a peer group company in France but was considering, later abandoning, the acquisition of a wireless communications service provider, T-Mobile, in the US.
In the second half of the year, Symrise, the German flavours and fragrances business, performed very strongly as investors began to appreciate the benefits of a recent acquisition and as a potential beneficiary of lower oil prices which would reduce their cost of goods sold. Finally, and encouragingly, in light of shareholders’ recent approval of the Company’s request to have the flexibility to invest more in UK listed companies, 3i Group, one of the UK’s leading private equity businesses, also continued to perform very strongly as some of its key investments, such as Action, a Dutch discount retail chain, delivered stronger than expected earnings growth.
The fall in the oil price led to a weak performance from shareholdings in companies operating in the oil industry, such as Total and Statoil, both of which were acquired during the year. Although these purchases were, with hindsight, poorly timed, I believe that these companies and Royal Dutch Shell, which is also held in the portfolio, will continue their efforts to improve cost and capital efficiency, and thereby their returns. The lower oil price will provide even more incentive to negotiate harder with governments and unions to improve the fundamental performance of these businesses. All three companies pay very attractive levels of dividend which are probably sustainable in the shorter term, given strong balance sheets, but I will continue to keep an eye on progress and the likelihood that they will be able to grow dividends on a longer term (three to five year) view.”
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