Fidelity European Trust has announced results for the 12 months ended 31 December 2024. The trust underperformed its benchmark over the period, returning 0.5% in NAV terms against 3.0% for the World Europe ex UK Index. The discount widened slightly too, which left shareholders with a return of -0.1%. [As with our story on European Smaller Companies Trust, it might be worth pointing out that the year to date return on the trust is 12.4% in NAV terms and 15.5% in share price terms.]

The dividend was upped to 9.1p from 8.25p. This was covered by revenue earnings of 10.4p. The discount remained broadly in single digits throughout the year under review, and no shares were repurchased.

There is a continuation vote at this year’s AGM on 8 May 2025 [We see no reason why investors shouldn’t back the continuation of the company].

Extracts from the Q&A provided by the manager

What stocks have been the main drivers of performance in 2024?

Marcel: The main contributors were: 3i which continued strong like-for-like store sales as well as store expansions at key holding Action, SAP was driven by strong product adoption (as detailed below) and margin performance and MTU as a result of strong aftermarket sales performance as well as successfully fixing the geared turbofan (GTF) engine issues.

The main detractors were: L’Oréal, which in a tough China environment, has seen growth in the short-term and expectations for the long-term decelerate, Nestlé mismanaged the pricing and cost relationship through Covid, and over the post Covid inflationary period, and thus had to reset medium-term guidance. Dassault Systèmes struggled with the Medidata acquisition as well as weakness from their autos and industrials customers.

Give an example of how your bottom-up stock selection process has added value to the Company this year?

Marcel: A notable example would be SAP. I covered SAP as an analyst 10 years ago and even back then the company and investors were talking about the massive potential of its enterprise resource planning software called S/4 HANA. Fast forward nine years later (an incredibly long time in technology) and the jury was still out on whether SAP’s customers would adopt S/4 HANA or not. After doing a significant amount of work with the current Fidelity analyst that covers SAP, we came to the conclusion that this long adoption cycle was mainly customers waiting for the technology to mature and also large customers such as Nestlé or Samsung needing several years to get their IT systems in order before they could begin migrating. Additionally, we discovered SAP has both a carrot and a stick to “nudge” customers towards adoption – the carrot being great new functionality (including new Artificial Intelligence offerings), and the stick being the fact that SAP will stop supporting older software versions of S/4 HANA from 2027-2030. All of this gave us strong conviction that S/4 HANA adoption would be a case of “when, and not if” and this proved to be the case in 2024 and led to the impressive performance of the Company.

This year has been full of political change around the world as well as Europe. How has this affected the portfolio? And how do you think about geopolitical risk within the portfolio?

Sam: 2024 was a year of elections; some outcomes were expected, others were not. As mentioned already, President Trump’s election, although expected by many, still resulted in rising bond yields because his policies on tariffs and immigration may be inflationary. This did not help the Company’s portfolio which has a preponderance of bond-like steady dividend growers that fare less well, at least in the short-term, in a more inflationary environment. The unexpected French parliamentary elections also hurt the Company’s performance. The portfolio is overweight companies listed in France because there are many world-leading franchises, like LVMH Moët Hennessy and L’Oréal, which have a long history of dividend growth. These companies garner the vast majority of their revenues and profits from outside France, but when investors are nervous about French sovereign exposure, they will get sold too in the general meltdown — probably more than they should. Many of our investors will know that Marcel and I stick to a policy of keeping large sector groupings balanced within five percentage points of the benchmark level. This balance normally dampens down other factorial risks, including geopolitical risks, across the portfolio, such that it is the stock-picking that drives performance over meaningful time periods. We still believe that will be the case in the longer-term.

FEV : Fairly flat 2024 for Fidelity European Values turns into more exciting 2025