Fidelity European Values say that, for the year ended 31 December 2015, the net asset value total return was 6.9%, outperforming its Benchmark Index, the FTSE World Europe (ex UK) Index, which returned 5.3%. The share price total return over this period was 9.2%, ahead of the NAV return as a consequence of the level of discount (ex-income) narrowing from 4.6% at the start of the year to 2.9% at the year end. The Board has decided to recommend a final dividend of 3.33 pence per share (2014: final dividend of 3.10 pence per share; and special dividend of 0.54 pence per share which related to a tax reclaim in France).
The manager, Sam Morse, says that stock market trends established in the first half of 2015 continued for the balance of the year such that most of the stronger performers of the first half remained key positive contributors for the year. These
include Novo-Nordisk, the leading diabetes care company, and a number of banks and financial institutions, such as UBS and Intesa Sanpaolo, where results gave more confidence in their internal turnaround programmes and dividend capacity. Elsewhere, the continued fall in the oil price pressured holdings in the energy sector, particularly Royal Dutch Shell, following its acquisition of BG Group. Holdings in companies that export to or operate in emerging markets, such as Edenred, which has a large part of its business in Brazil, performed poorly in the second half of the year. Many of these companies have strong business models and the financial capacity to continue to pay healthy dividends, invest organically, and acquire businesses, while the external environment is difficult, which will be reflected in superior business and share price performance, as and when the environment improves.
The main detractor in the second half of the year was Volkswagen, due to its ’emissions scandal’. The company fell more than half, from its peak, before recovering somewhat in the fourth quarter when it appeared that the cost of fixing the European models which had ‘defeat devices’ would be less than originally expected and when it also became apparent that the negative impact on sales, due to brand damage, was largely focused on the Volkswagen brand, rather than the very important Audi or Porsche brands. The manager believes that, although there is obviously a lot of uncertainty regarding the ultimate penalties the company will face, in terms of fines, ‘fix’ costs and reputational damage, the share price still discounts an overly pessimistic scenario, especially given the strength of the company’s balance sheet.
FEV : Fidelity European Values beats benchmark in 2015