Fidelity European Trust plc (LON:FEV) is the topic of conversation when Hardman and Co’s Analyst Riccardo Bindi caught up with DirectorsTalk for an exclusive interview.
Q1 What can you tell us about the note you have just published?
A1: As we approach the end of the calendar year, and despite the tough start, in this note, we reiterate Fidelity European Trust’s focus on stock-picking and downside risk. This should reassure investors that FEV is continuing to add value to investors over the long term.
Q2 Are FEV’s investment philosophy and long-term track record worth re-visiting?
A2: Yes. We touched on FEV’s investment philosophy in our previous three notes, but it is always worth reminding readers of the trust’s core tenets. It is a bottom-up process, which seeks out companies that can grow dividends sustainably over a three to five-year horizon.
The managers look for attractive valuations: good quality at a reasonable price, with low turnover, and hence low transaction costs. It is a cautious strategy that focuses on managing downside risk, and the fund is always fully invested.
Q3: What other issues do you touch on in the note?
A3: We touch on a few macro issues that have made the financial headlines this year – energy prices, rising interest rates, and concerns about the luxury sector, and see how they affect FEV, if at all. We also briefly touch on a few other FEV-specific topics, such as share repurchases, portfolio turnover and fees.
Q4: Have any of these macro issues had any effect on FEV?
A4: With regard to rising inflation and rising rates, which have been a major concern this year, FEV is overweight Financials by over 5%, and has had a few good contributors to performance with the likes of Bankinter and Deutsche Boerse. On the concerns about consumer expenditure and the luxury sector, FEV has a 5.5% position in LVMH, which is also a top 10 position. LVMH is one of the world’s leading luxury and fashion groups, and has shown great resilience, with great results, and a good performance relative to the index as well.
Rising energy prices have been another concern. The weighting of the sector in FEV’s benchmark is quite small, and FEV is neutral-weighted. Its biggest position in the sector is in Total Energies, which is another stock that has performed very well this year.
Overall, none of these macro issues have influenced FEV’s performance this year.
Q5:You also mention fees and turnover – any major changes there?
A5: Not really, but again it is worth reiterating what we have mentioned in previous notes. Fees have been going down since 2016 and are competitive versus the peer group. Turnover as well has historically been low and has averaged 16% over the last five years. The largest holdings show remarkable consistency over the years, which is what we would expect from long-term stock-pickers.
Fidelity European Trust’s strength over the years has been in generating alpha by picking good-quality growth companies at a fair price, rather than churning lowly valued shares that may or may not rerate, or following macro trends, and engaging in market timing.