The Fidelity European Dynamic Growth represents a strong option in the Morningstar category of large-cap European equities. The managers’ stock selection skills and their consistent and patient approach have earned them the Investment Fund of the Month Award, which delivers the Investment magazine, and a Morningstar rating of Gold for its cheapest share classes. The most expensive stocks are rated Silver.
We have a high opinion of Fabio Riccelli, manager of the fund since November 2008, and of co-manager Karoline Rosenberg, a seasoned investor who has worked alongside Riccelli since 2017, when the duo took over the European equity strategy 130 / 30 Fidelity FAST Europe.
The workload is better distributed today, as Riccelli stopped managing the day-to-day running of the firm’s Iberia fund in 2020 and fintech analyst Mac Elatab assumed the role of deputy portfolio manager in May 2021. Additionally , the managers continue to count on the support of the firm’s important team of European analysts.
Fabio Riccelli is a patient stockpicker with a bottom-up approach, focusing on large and mid-cap companies capable of generating 10-15 percent total shareholder return over a long period of time. The process builds on the team’s strengths as he and co-manager Karoline Rosenberg connect with company analysts for research ideas.
Riccelli emphasizes the growth of a company’s business and invests for the long term, which translates into multi-year holding periods.
Stock valuations are a key tenet of their buying and selling discipline, but managers are willing to invest at relatively high multiples if they justify the growth trajectory and the power of earnings, key determinants of the intrinsic value of each company in the world. This process.
The focus is on companies least affected by external factors, that benefit from secular trends in demand, that depend on internally generated cash flows for growth, that have a high return on invested capital and that enjoy sustainable competitive advantages. The latter represents a key defense for the portfolio.
Position sizes range from 1% to 5% depending on liquidity, conviction, and business risk; Larger and more stable companies tend to have a higher portfolio weight. The manager’s high-conviction, bottom-up, and unconstrained approach leads to marked bias at the sector level and company size.
We believe this process is distinctive, consistent, and well designed to exploit both the manager’s and analysts’ research advantage. The Fund’s Process pillar is rated high.
A distinctive portfolio
This low-turnover portfolio, comprised of some 50 stocks selected on merit, remains distinctive. The manager holds above-average holdings in mid-caps (about a third of assets, almost 3 times the MSCI Europe Growth Index), an area where he usually finds growth traits and orientation toward growth. pursuing quality.
Therefore, the strategy has a limited capacity and we value positively the soft closure of the fund that became effective in February 2020 when the assets under management reached 5 billion euros.
In terms of sectors, the fund’s defensive consumer share was cut from 14 percent in April 2020 (a 10-year high) to around 11 percent as of April 2021, as managers want to maintain the fund exposure to tobacco at about 5 percent of assets due to ESG-related concerns. The weight of the health sector is still significant, around 20 percent.
The strategy remains highly exposed to the technology sector (around 20 percent). In particular, the team added Infineon Technologies last year.
In 2020, the managers also increased the fund’s exposure to communication services with a new stake in Prosus, which is now among their top 10 positions.
In keeping with the process, managers continue to avoid large swaths of the market, such as banks, real estate, telecommunications, energy and utilities. Cyclical consumer products, at 6 percent compared to 16 percent for the benchmark, are also severely underrepresented.