Fidelity European Trust plc (LON:FEV) is a core European equity fund with a long and consistent track record of outperformance, with an NAV total return over the last five years of c. 54%, significantly ahead of the benchmark, c.35%, and Morningstar Europe peer group, 34%. The size of an investment trust is a hot topic for many investors, and FEV’s market cap of c. £1.4bn means it is the largest European equity investment trust and a constituent of the FTSE 250 index. Cementing its status as a ‘core’ holding, FEV also scores well in our risk and downside protection analysis shown in the Performance section.
The team managing FEV focus on stock picking and their analysis shows that the bulk of returns over the long term come from this focus. Although FEV does not have a specific equity income objective, the management team look at the sustainability of dividends and dividend growth as important factors, and FEV’s dividend has grown every year under manager Sam Morse’s tenure, beginning in 2011. FEV’s yield is 2.4%.
FEV’s Gearing is currently c. 13% and this is approximately the level that investors should expect most of the time. The team does not try to time markets or dynamically adjust gearing, and the trust will typically be geared by this amount. Instead, gearing is held at around this level as the team’s internal analysis that this offers the best risk/reward match to the investment strategy over the long term.
The discount is currently c. 8%, and this has held at a consistently narrower level than the Morningstar Europe peer group, currently c. 10%, over the long term. The board has historically used share buybacks when the discount has widened beyond 10%, most recently in 2022.
FEV has been awarded a Kepler ‘Growth’ rating for 2025.
Analyst’s View
It’s not hard to make a list of negative concerns about Europe, nevertheless, Europe collectively is an important equity market home to some key global companies and FEV’s status as the largest ‘core’ European equity trust with an impressive track record should place it high on the list for any investor seeking to build a diversified portfolio.
With that in mind, and with the caveat that FEV is not specifically designed as an equity income trust, its dividend growth record is also impressive, well ahead of inflation over more than a decade, and in our view FEV could make a good addition to an equity income portfolio, providing some diversification and an engine for income growth that higher yielding trusts might struggle to keep pace with.
As we enter 2025, a key area of concern for investors in European equities relates to potential trade tariffs with the US. It’s no surprise that this is a live discussion within the FEV team, but their focus has always been on stock picking and like any other potential challenge for markets they are analysing this in terms of the individual stocks in the portfolio, rather than at a macro level. As a generalisation though, the portfolio is populated by companies with diverse global revenues, and the trust is naturally underweight in companies that appear particularly at risk, such as automotives and spirits. As ever, uncertainties in stock markets can create volatility and provide investors with a good opportunity to initiate or add to a position in FEV.
Fidelity European Trust PLC (LON:FEV) aims to be the cornerstone long-term investment of choice for those seeking European exposure across market cycles.
