Built to stand the test of time

Sam Morse, Portfolio Manager, Fidelity European Values PLC, on the trust’s company-focused approach to investing

Since its launch in 1991, Fidelity European Values PLC has aimed to be the cornerstone long-term investment of choice for those seeking European exposure. The trust has navigated a range of market cycles – boom, busts and recoveries – and no shortage of significant events, from the fall of the Berlin wall, to the European sovereign debt crisis and now today the global coronavirus pandemic.

The trust’s success over this period has been underpinned by a clear and consistent focus on what matters most – the companies we invest in. As Peter Lynch, the respected American investor, famously said: “Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.”

In this regard, the trust will, as always, stay fully invested and focus its attention on identifying well-established European companies with proven business models, attractive valuations and the ability to grow dividends both now and in the future. History shows that this approach has served investors well, with the trust returning 141% versus a benchmark return of 68% over my tenure (see the table above for past performance). However, past performance is not a guide to the future.

Why are we also committed to staying fully invested? Well, Fidelity has published a lot of research which has shown that trying to call the market is a fool’s game: you may be able to call the top but if you don’t get back in near the bottom you will miss some of the strongest days of return and leave a lot of money on the table.

Looking at markets today, the outlook feels as uncertain as any time since the 2008 crisis. Much remains to be seen regarding the impact of the coronavirus outbreak; notwithstanding the human cost, there will likely be winners and losers. As always, there are a lot of little devils hiding in the detail.

For dividend-focused investors there are new challenges to consider. Now you must consider, not only is a company willing to pay a dividend – but will the political, regulatory and societal pressures allow it?

As a result, the near-term dividend picture has become confused. However, while it may be a flickering candle now rather than a bright torch, it will still be of great use in these dark times. Our strategy is to treat each company held on a case by case basis (paying a lot of attention to valuation), while in general, we will continue to be wary of those companies that are reducing dividends whatever the public explanation.

We will also stay focused on companies with strong balance sheets which can take advantage in difficult times, like these, while companies with weak balance sheets may be in peril. We are investing in businesses that are tough long-term franchises and, as the saying goes, when the going gets tough, the tough get going.