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Fidelity European
Fidelity European is a core European equity fund with a disciplined and cautious long-term focus. Although not an income fund, the team wants companies which can sustainably grow their dividends over time. The team describes its philosophy as ‘quality at reasonable price’.
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Fund Managers
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Sam Morse, Co-Manager Sam Morse assumed management responsibility for the Fidelity European Fund in 2010 and the Fidelity European Values Fund in 2011. He managed the Fidelity MoneyBuilder Growth Fund from December 2006 for three years. Before becoming a portfolio manager, Sam spent two years as a research analyst at Fidelity, covering various sectors, and then six years as an equity income fund manager at Fidelity. He also served as Head of Equities and Head of UK Equities at M&G from 1997 to 2000.
Marcel Stotzel, Co-Manager N/A
Sam Morse, Co-Manager Sam Morse assumed management responsibility for the Fidelity European Fund in 2010 and the Fidelity European Values Fund in 2011. He managed the Fidelity MoneyBuilder Growth Fund from December 2006 for three years. Before becoming a portfolio manager, Sam spent two years as a research analyst at Fidelity, covering various sectors, and then six years as an equity income fund manager at Fidelity. He also served as Head of Equities and Head of UK Equities at M&G from 1997 to 2000.
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Investment process
The fund’s investment philosophy is broken down into three core principles: 1) bottom-up – whereby there is a stock selection focus; 2) long term – as the team believes long-term thinking reduces costs and improves performance; and 3) cautious – with a focus on managing downside risk.
Although this is not an income fund, the dividend forms a core part of the fund’s philosophy. In particular, there is a heavy emphasis on dividend growth. This is because the team believes there is clear evidence that companies which consistently grow their dividend over time outperform.
A big priority for the fund is preserving client capital relative to the benchmark. Idea generation comes from Fidelity’s European research analysts. Sam and Marcel can also make use of external sources such as company meetings or external analysts and experts.
Potential ideas are initially considered on four areas. The first is positive fundamentals – looking for structural growth, good return on capital and dividend growth prospects; the second is the ability to generate cash, the third is a strong balance sheet, as the managers dislike highly levered companies and the fourth is an attractive valuation – looking for good quality at a reasonable price.
Sam and Marcel will then meet the company to reinforce conviction in the four areas above. They want companies which can grow their dividends sustainably for at least the next 3 to 5 years. The team then applies Sam’s ‘three good reasons to buy a company’, which include two fundamental reasons combined with one valuation reason. If a company passes all these stages and the ‘three reason test’, they will initiate a position.
The portfolio is then constantly reviewed and if any of the three reasons changes this prompts a review of the stock.
Risk
The fund is well diversified and is limited to going a maximum of 5% over or underweight different sectors versus the benchmark (MSCI Europe ex United Kingdom). The managers are quite strict in terms of valuation discipline and typically don’t let positions run too much before trimming them back. The fund invests for the long term with a 3 to 5-year time horizon and fund turnover is usually around 20%. The fund’s volatility, and in particular max drawdown, have been considerably lower than the benchmark. It has been able to perform in many different market environments.
ESG
ESG – Limited
ESG analysis is carried out at the fundamental research level by Fidelity research analysts, through the implementation of the Fidelity Proprietary Sustainability Rating. ESG factors are not a major consideration of this fund.
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