Fidelity European Trust reports 6.4% NAV return and raises interim dividend

Fidelity European Trust plc (LON:FEV) has announced half-yearly results for the six months ended 30 June 2026 (unaudited)

Financial Highlights:

• The Board of Fidelity European Trust PLC declares an interim dividend of 4.20 pence per share, an increase of 7.7% on the prior year.

• During the six months ended 30 June 2026, Fidelity European Trust PLC reported a net asset value (NAV) total return of +6.4% and a total share price return of +5.2%.

Over the same timeframe, the benchmark index, the FTSE World Europe ex UK Index, rose by +10.3%.

Portfolio Managers’ Half-Yearly Review

Performance Review

During the first six months of the year, the net asset value (“NAV”) total return was +6.4% compared to a total return of +10.3% for the FTSE World Europe ex UK Index, the Company’s Benchmark Index. The share price total return was +5.2%, which is below the NAV total return because of widening of the share price discount to NAV (All figures in UK sterling.)

Market Review

Continental European equities delivered positive returns during the six months to 30 June 2026, supported by improving corporate earnings, continued enthusiasm for artificial intelligence (AI)-related investment and growing optimism surrounding Europe’s fiscal outlook. The year began positively, with market leadership broadening beyond US mega-cap technology stocks and a resilient corporate earnings season underpinning investor confidence. However, markets remained volatile as investors responded to a rapidly changing geopolitical backdrop. Although market leadership initially broadened, it became more concentrated as the period progressed, with defence companies, more economically sensitive businesses and selected technology companies performing particularly strongly.

Sentiment deteriorated sharply during March following the conflict in the Middle East, which triggered a significant energy shock and renewed concerns over Europe’s energy security, inflation and economic growth. Conditions improved during the second quarter as tensions eased following a US-Iran interim agreement, reducing the geopolitical risk premium and supporting a recovery in investor confidence. Nevertheless, markets remained heavily influenced by inflation and monetary policy expectations. The European Central Bank maintained a data-dependent stance for much of the period before raising its key policy rate by 0.25% in June in response to inflationary pressures following the earlier energy shock.

Portfolio Managers’ Report

The Company’s NAV rose during the period but did not keep pace with its Benchmark. Although sector allocation contributed positively, weaker stock selection across the financials, healthcare and technology sectors detracted from relative returns. The use of gearing contributed to performance but was not sufficient to offset the impact of these stock selections.

During the period, investors generally favoured companies expected to benefit directly from AI investment and more economically sensitive businesses whose share prices tend to move more sharply. By contrast, many quality companies with reliable earnings and a record of growing their dividends remained out of favour. Against this backdrop, the Company’s relative performance was impacted by ongoing style headwinds, a small number of stock-specific issues and the recent shift away from software companies which are being seen as AI losers. The portfolio has a healthy weighting in AI beneficiaries and, despite near-term market scepticism, has maintained its exposure to those software companies which possess durable competitive advantages. While these factors weighed on short-term returns, we believe the portfolio remains well positioned to deliver attractive long-term returns through its focus on resilient business models, strong cash generation, disciplined capital allocation and sustainable dividend growth.

Private equity businesses Partners Group and 3i Group were the principal detractors from performance over the period.

Partners Group weakened as investor sentiment towards the listed alternatives sector deteriorated amid concerns over slower fundraising in private wealth channels, redemption pressures across evergreen vehicles and the sustainability of future performance fees. These concerns intensified after the company temporarily limited withdrawals from one of its private equity evergreen funds following elevated redemption requests, while investors also questioned whether strong 2025 performance fees had pulled earnings forward from 2026. Despite these near-term concerns, we continue to view Partners Group as a high-quality franchise, supported by resilient institutional fundraising and attractive long-term growth prospects.

3i Group, whose principal asset is discount retailer Action, also detracted after softer trading in France prompted investors to question the sustainability of Action’s growth trajectory. We believe these concerns are cyclical rather than structural, with Action continuing to benefit from a highly differentiated value proposition, significant pricing advantages and substantial scope for expansion across Europe and internationally. Encouragingly, investor sentiment improved towards the end of the period following the company’s stronger-than-expected AGM trading update, which highlighted improving like-for-like sales, robust cash generation and continued profit growth.

Novo Nordisk detracted from relative performance during the period. We sold the holding in March following further disappointment with its next-generation obesity treatments and increasing concerns around competitive and pricing pressures, which weakened our confidence in the company’s longer-term growth outlook.

Several software holdings were affected by concerns that AI could disrupt their businesses. SAP, Dassault Systèmes and Amadeus IT were among the top ten detractors despite continuing to generate resilient cash flows and retaining strong competitive positions within mission-critical software markets. Collectively, these positions reduced relative returns by more than 1.8%. In our view, the market continues to underestimate both the difficulty of replacing deeply embedded software platforms and the potential for these businesses to benefit from AI adoption over time. By contrast, the portfolio also retained meaningful exposure to AI-related infrastructure beneficiaries, including ASML and Legrand, which together contributed more than 2.0% to returns over the period.

Among the strongest contributors was TotalEnergies, which benefited from stronger oil and gas prices, resilient operational performance and continued capital returns through higher dividends and accelerated share buybacks.

By avoiding investments in some large companies in the Benchmark Index, such as LVMH, Rheinmetall, Prosus and Deutsche Telekom, the Company benefited by 1.4% compared to the Index performance.

The Company’s five highest stock contributors and detractors on a relative basis are included in the Half-Yearly Report.

Outlook

Geopolitical uncertainty and evolving trade and energy dynamics continue to create a wider range of potential outcomes for European equities. We believe the investment environment remains characterised by elevated uncertainty, reinforcing the importance of focusing on company fundamentals rather than attempting to make macroeconomic calls.

Despite this backdrop, we remain positive on the long-term outlook for the portfolio. We believe many of the high-quality businesses held in the Company continue to demonstrate resilient operational performance, strong balance sheets and attractive long-term growth prospects, despite recent share price weakness.

We also believe that the investment strategy is unusually attractively valued relative to history. Historically, the Company has traded at a dividend yield 5–15% lower than the market, reflecting the superior quality, cash generation and dividend growth characteristics of its holdings. Today, the dividend yield of the Company is broadly in line with that of the market. In our view, this means investors can access a portfolio of higher-quality companies with stronger long-term growth potential without paying the premium that has typically been required in the past.

Looking ahead, recent volatility has created opportunities to strengthen the portfolio. We have increased exposure to companies benefiting from AI and data-centre investment, added selectively to attractively valued European banks and, following the recent sell-off, initiated a position in German defence company Hensoldt. We have also exited holdings where conviction has weakened and recycled capital into businesses with stronger long-term prospects. Alongside the portfolio’s attractive starting valuation, we believe these changes provide a stronger foundation for improved relative performance over the medium-term.

Sam Morse, portfolio manager of Fidelity European Trust plc (the “Company” or “FEV”) since 2011, has informed the Board of his intention to retire in October 2027, after four decades in the investment industry.  

Effective 1 ^st   November 2026, existing portfolio managers, Marcel Stötzel and Sam Morse, will be joined by Alexander Laing, forming a three-person portfolio management team for the Company. The team is supported by Fidelity International’s large global research platform and investment resources.   

There is no change to the Company’s investment   objective   or investment policy   as a result of   this change.    

Alexander brings deep experience as both a European analyst and portfolio manager, having been with Fidelity since 2011. He   is currently portfolio manager for the Fidelity Funds – Climate Solutions Fund and the Circular Economy strategy, and co-portfolio manager on the Fidelity Funds – Water & Waste Fund.    

The Chairman of Fidelity European Trust PLC, Davina Walter, comments:     

“Bringing Alexander into the portfolio management team at this stage provides an extended period for him to work closely alongside Sam and Marcel, supporting a smooth transition of responsibilities over a 12-month period. Alexander also brings complementary portfolio management experience and investment   expertise   to the team.” 

“The Board and I are grateful to Sam for his continued commitment to the Company and his support   in   the long-term succession plan, as well as for the significant contribution he has made to FEV’s success over the past 15 years. During his tenure to date, Sam has delivered strong long-term returns for shareholders, outperforming the benchmark by approximately 1% per annum and generating an annualised return of around 10.5% over the period, on a NAV total return basis.”