Fidelity European Values stock selection stems declines in falling market – Fidelity European Values PLC (FEV) posted an NAV per share total return of -4.8% for the year ended 31 December 2018, while the benchmark index, the World Europe (ex UK) Index, returned -9.5%.
The landscape across the second half of 2018 was challenging, as markets faced twin headwinds of trade tensions and rising interest rates, which were further aggravated in Europe by the chronic government budget deficit in Italy and political unrest in Spain, as well as ongoing uncertainty around Brexit and its wider implications on European economies.
FEV’s stock selection capability over 2018 allowed it to stem the tide somewhat compared to its benchmark. It’s positions in financial services and over and underweight exposure to technology and automobiles respectively, were among the key reasons behind its benchmark outperformance.
Financial Highlights
- Fidelity European Values PLC recorded a net asset value (“NAV) per share total return of -4.8% for the year ended 31 December 2018, while the World Europe (ex UK) Index, returned -9.5%.
- The discount widened from 8.6% to 10.7%, as a result of the share price total return of -6.8%.
- The board recommends a final dividend of 6.28 pence per share for approval by shareholders at the AGM on 13 May 2019. In addition, the board has decided from the 2019 financial year to pay both an interim and a final dividend.
- In a difficult year for equities, the manager’s strong stock selection capabilities were once again the significant drivers of performance with several high-conviction holdings contributing positively to returns.
Extract from the portfolio manager’s review
Sam Morse, portfolio manager FEV, said: “The focus on reliable dividend growers often means that the company holds up relatively well when investors grow more nervous and when equity markets struggle and this was the case in 2018.
Other factors contributed positively too, such as sector positioning, e.g. being overweight in technology and underweight in automobiles, and the focus on strong balance sheets as investors became increasingly concerned about financial leverage. Stock-picking, however was, as usual, the main determinant of relative performance. The financial sector provided the greatest boost, in aggregate, to relative performance. Deutsche Boerse was a strong individual contributor.
I seldom make ‘major’ changes to the portfolio because my investment horizon is quite long term. I am focused on attractively-valued companies, which I think can grow their dividends consistently on a three to five year view. Indeed, many of the company’s investments have been held throughout my tenure as this company’s portfolio manager, which is now more than eight years. As a result, the turnover in the portfolio tends to be quite low and 2018 was no exception to this. Holdings in BIC Group, the lighters to pens company, Elior, the contract caterer, Anheuser-Busch InBev, the beer company, and Aena, the Spanish airports owner and operator, were all sold during the year. The first three were sold on concerns regarding their dividend outlook given deteriorating fundamentals while Aena, which has been a very rewarding investment since purchase around three years ago, was sold because the valuation was no longer as attractive.
UK exposure fairly low
The UK represents a small proportion of continental European companies’ sales and profits: less than 5%. So the direct consequences of a ‘no deal’ Brexit, and a subsequent devaluation of UK sterling, would be minimal for most companies. Those more affected would be companies with larger businesses in the UK such as the Spanish banks Santander and Sabadell. A number of companies, such as those in the auto sector, might also suffer from short term disruption due to supply chain issues if there is a ‘no deal’ Brexit. A devaluation of UK sterling in the event of a ‘no deal’ Brexit would, however, result in exchange rate gains for UK sterling investors in the company.”
FEV : Fidelity European Values stock selection stems declines in falling market