Fidelity's European Values suffers from market unknowns

Fidelity's European Values suffers from market unknowns

Fidelity European Values has announced a net asset value per share total return of minus 4.8 per cent in results published today (March 15).

For the 2018 year, the FTSE World Europe (ex UK) index, the company's benchmark returned minus 9.5 per cent.

According to the full year results, the company's discount widened from 8.6 per cent to 10.7 per cent as a result of the share price total return of minus 6.8 per cent.

Portfolio manager Sam Morse attributes the "disappointing year" to stocks including French telecoms company Iliad Group, which suffered from poor execution in an increasingly competitive market.

"Atlantia, the Italian motorways operator, also had major setback when the Morandi bridge collapsed with tragic consequences," Mr Morse said.

The board has recommended a final dividend of 6.28 pence per share, which is subject to approval by shareholders at the annual general meeting on May 13, 2019.

In addition, from the 2019 financial year, Fidelity European Values will pay both an interim and final dividend.

As at December 31 2018, the company's gross gearing was 10.1 per cent, down from 13.2 per cent at the end of 2017. Net gearing for 2018 was 6.1 per cent, compared with 3.6 per cent a year earlier.

Mr Morse said: "2018 was a year of growing uncertainty, which is never good for stock market returns. As in a suspense movie, investors spent much of the year fearing what might come next.

"When the year began, the global economy was humming, earnings estimates were rising and there appeared to be few clouds on the horizon.

"Within a few weeks, however, and just as the ink dried on endless optimistic projections by strategy teams around the City, the angst began. Investors started to worry: 'is this as good as it gets?' Then as the year progressed, ‘events’ provided more reasons to fear what might come next.

"We ended the year almost at the other end of the spectrum: fearing the impact of trade wars, higher interest rates in the US, the unpredictability of populist political agendas, etc, and all this just as the European Central Bank (“ECB”) finally ended its programme of quantitative easing. 

"December saw a dramatic sell-off and what was touted, at the outset, to be a banner year for stock market investors, turned into a very disappointing year with only cash providing a positive return."

Fidelity European Values focuses is made up of stocks that the managers claim are able to consistently grow their dividends, irrespective of the prevailing backdrop.

Mr Morse said: "The focus on reliable dividend growers often means that the company holds up relatively well when investors grow more nervous and when equity markets struggle and this was the case in 2018.

"Other factors contributed positively too, such as sector positioning, e.g. being overweight in technology and underweight in automobiles, and the focus on strong balance sheets as investors became increasingly concerned about financial leverage."

In addition to technology, financials also contributed positively to the portfolio during the year.