FIDELITY EUROPEAN TRUST: An investment of £10,000 has grown to half a million… in just 30 years
On Bonfire Night just gone, investment trust Fidelity European celebrated its 30th anniversary. Despite some occasional difficulties along the way, the £1.4billion stock market-listed fund has done shareholders proud. Anyone who invested £10,000 at launch in November 1991 would now be sitting on a holding not far short of £500,000.
Originally run by former star manager Anthony Bolton, the trust is now overseen by Sam Morse who has been at the helm since early 2011. Last year, its name was changed from Fidelity European Values to Fidelity European so as not to be mistaken for a trust investing in value stocks – companies undervalued by the market.
Although the new name doesn’t truly reflect Morse’s investment approach, it’s an improvement on what went before. Yet it should be called Fidelity European Income or Fidelity European Dividend Growth because Morse’s focus is very much on income-friendly stocks. ‘I look for companies that can deliver dividend growth over a three to five-year time period,’ he says. ‘But I will not pay too much for these stocks. They have got to be reasonably priced.’
It’s a strategy that is working. Under Morse’s wing, the trust has enjoyed ten years of dividend growth and is on course to make it 11. The interim dividend it has just paid shareholders is slightly up on the equivalent made last year – 2.65pence a share, compared to 2.5pence – while 80 per cent of the portfolio’s holdings are now paying dividends higher than in 2019 before the pandemic struck. ‘I am hopeful we can grow the dividend from here,’ he says confidently.
In terms of overall shareholder profits, the trust has generated ten-year returns of 324 per cent. ‘We’ve delivered some impressive returns,’ admits Morse. ‘Europe is sometimes seen as a backwater, but there are some extraordinary companies out there generating earnings from all four corners of the globe and delivering the dividend growth we seek.’
The trust’s strong record, says Morse, is testimony to three key ingredients – successful stock picking; the compounding effect of reinvesting dividends as they are received; and astute gearing.
The trust has 50 holdings – ideas all from Fidelity’s pan-European research team. Among the newest holdings is Spanish bank Bankinter. ‘Spain’s banking sector is in consolidation mode,’ says Morse. ‘But Bankinter hasn’t participated in this. As a result, it’s picked up new business from people who have been unhappy that their bank has been taken over or their local branch has been shut. It’s also now paying dividends again and has successfully listed its insurance subsidiary Line Directa. We hold shares in both companies.’
In terms of gearing, the Fidelity trust uses contracts for difference (complex derivative instruments) to gain additional market exposure – in the hope of generating extra investment returns. Over the past ten years, its sister fund Fidelity European – which cannot borrow, is not stock market-listed, but is also run by Morse – has generated a 223 per cent return from a similar portfolio (against 324 per cent for the trust). The difference in returns is in part a result of the trust’s successful use of CFDs.
The trust’s ongoing charges are 0.87 per cent and the dividend is equivalent to a modest annual yield of 1.93 per cent. The stock market identification code is BK1PKQ9 and ticker is FEV. Other European funds with an income bent include BlackRock Continental European Income and Montanaro European Income.