Page 18 - DIY Investor Magazine | Issue 33

STAYING THE COURSE AMID UNCERTAINTY IN EUROPE
Amid rising volatility triggered by the Ukraine war, Sam Morse and Marcel Stötzel, portfolio managers of the Fidelity European Trust PLC, review the current market dynamics across regional equity markets. In particular, they highlight why their focus on building a balanced portfolio of robust dividend-payers should be well positioned to deliver attractive long-term returns.
We have had a turbulent start to the year, with the Ukraine war and accompanying sanctions on Russia threatening to impact economic growth in Europe. As the tragic humanitarian costs of the war continue to unfold, our first thoughts are for the suffering of the Ukrainian people.
Although the portfolio does not have any direct investments
in Russia and Ukraine, the second order effects of the war
are being felt given both countries are major suppliers of a wide range of agricultural and commodity products. More limited supply of these could exacerbate inflationary pressures worldwide, as could any disruption to Russian oil and gas exports.
On the positive side, the improving outlook on Covid-19 vaccination rates should help European economies continue to reopen and normalise.
Moreover, Europe has a strong export sector and is therefore poised to benefit from the global recovery. The region is also home to many companies in the technology and consumer sectors that we believe could be well placed to drive the next decade of innovation.
The most obvious example comes from the European tech sector where we see companies such as Dassault Systèmes and ASML continuing to be amongst the most innovative companies globally.
However, another example is European consumer goods companies which are at the leading edge when it comes to the latest tech buzzword – the “metaverse”.
Put simply, the metaverse is a network of 3D virtual worlds that is facilitated by the use of virtual and augmented reality.
Examples of European innovations include: EssilorLuxottica partnering with Meta (formerly Facebook) on augmented reality Ray-Ban sunglasses and Gucci (part of Kering) and Roblox partnering to offer digital outfits.
While these initiatives are currently small, some experts are forecasting that over the coming decade digital purchases could account for 25% of luxury goods sales, which given the high margins these products have would be very meaningful for share prices.
‘EUROPE HAS A STRONG EXPORT SECTOR AND IS THEREFORE POISED TO BENEFIT FROM THE GLOBAL RECOVERY’
While the outlook for Europe may be more uncertain, the portfolio has performed strongly over the last year on both
a relative and absolute basis, helped by the rising tide of earnings and dividends, coupled with the strong liquidity from supportive monetary policy.
PAST PERFORMANCE
Net Asset Value
Share Price
FTSE World Europe ex-UK Total Return Index
Feb Feb 2017 2018 Feb Feb 2018 2019
16.20% 2.40%
20.50% 2.80%
12.70% -3.30%
Feb Feb Feb 2019 2020 2021 Feb Feb Feb 2020 2021 2022
10.80% 11.30% 15.70%
11.60% 13.90% 15.90%
6.50% 14.40% 8.90%
Past performance is not a reliable indicator of future returns.
Source: Morningstar as at 28.02.2022, bid-bid, net income reinvested.
©2022 Morningstar Inc. All rights reserved. The FTSE World Europe ex-UK Total Return Index is a comparative index of the investment trust.
DIY Investor Magazine · Apr 2022 18