Fidelity European Trust (FEV) has announced its annual results for the year ended 31 December 2023. The company reported a NAV total return of +17.5% while the benchmark Index, the FTSE World Europe ex UK Index, rose by +15.7%. Over the same period, the ordinary share price total return was +15.3%. The board also announced a total dividend of 8,25 pence which represents an increase of 7.1% on 2022. The trust’s current discount sits at 7%. The managers noted that they remain focused on identifying attractively valued companies which will deliver consistent dividend growth cycle on cycle.
Discussing the results, chair Vivian Bazalgette added:
“The year under review began as the previous one ended, with interest rates and inflation continuing to ratchet upwards in Europe, as they did in the US and UK. While early expectations had been that the end of China’s ‘zero-Covid’ policy would lead to a swift normalisation of economic activity and foreign travel, the reality was much more muted, and this has had negative implications for Europe, a region for which Chinese companies and consumers are a major source of business. These headwinds led the International Monetary Fund to revise down its expectations for economic growth in the Euro area twice during the course of the year, with the October World Economic Outlook predicting GDP growth of just 0.7% for 2023. With no European Central Bank rate increases since September 2023, however, more moderate inflation numbers and increased hopes of a rapid resumption of monetary easing on both sides of the Atlantic, markets rallied in the fourth quarter of the year.
“While consumers have continued to face a cost-of-living crisis, many companies have managed to maintain their margins, even amid higher costs, a theme that has played out favourably in the company’s portfolio given our portfolio managers’ focus on well financed businesses with good pricing power. While Sam Morse and Marcel Stötzel seek to invest across a broad spread of countries and sectors in Europe, they are fundamentally bottom-up stock pickers. Their focus is on finding attractively valued dividend growers with strong business franchises and balance sheets, which are not overly at risk from exogenous factors such as geopolitics or the macroeconomic backdrop. This constitutes the core of their long-term investment philosophy.”
Regarding the outlook, he continued:
“Last year, I sounded a cautious note on the outlook for the portfolio, given the risk of a global recession at some stage in 2023. While this has not yet come to pass – and indeed, there was a degree of euphoria in markets towards the end of the reporting year under review – it would be unwise to buy too fully into the idea that ‘normalising’ interest and inflation rates will ensure a rosy picture in 2024. As Sam points out in the Portfolio Managers’ Review below, a return to target inflation rates of 2% could be seen as quite restrictive in a historical context. If this is achieved only because of a flatlining global economy, then the market could take fright over the prospects for corporate earnings and dividends, particularly if interest rate reductions are seen to be delayed. Other reasons to be cautious include the possibilities arising from many elections this year, the Chinese economy and the property market – which appear to have deeper-seated problems than anyone expected, the ongoing conflagration in Ukraine, and the conflict in the Middle East, which has been affecting energy prices given concerns over security of shipping in the Red Sea.
“With all that said, however, your company performed well in 2023, aided by stock-specific opportunities in areas such as private equity, where 3i Group and Partners Group were the two biggest winners in the portfolio. There was also a positive impact from gearing, maintained throughout the year and used to take advantage of the fact that markets tend to rise over the long-term. The Portfolio Managers’ focus is unchanged and continues to be on finding attractively valued companies with good prospects for cash generation and dividend growth over the longer-term, with positioning driven by opportunities at the individual stock level rather than macro developments.”
FEV : Fidelity European Trust turns out strong year