Understanding The Fund: Fidelity Funds – European Growth Fund

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Europe has been quietly making progress in the markets this year, with investors starting to take notice of the opportunities available in European equities. In this article, we will explore the reasons behind Europe’s positive performance, the potential risks to watch out for, and the investment strategy of the Fidelity European Growth Fund.

Europe’s Quiet Success

Europe has seen the culmination of measures implemented over the past two years, such as labor reforms and actions taken by the European Central Bank. These measures have contributed to the success of European companies, which are not only exporting but also developing competitive products. Germany, which has long been the powerhouse of Europe, has shown strong employment numbers and a growing housing market, benefiting the entire region. Additionally, there has been an increase in mergers and acquisitions within Europe, with large European companies becoming more open to takeovers. Furthermore, Europe’s valuation compared to other markets, including the US, has widened, making it an attractive investment opportunity.

Potential Risks and Long-Term Outlook

While Europe is experiencing positive momentum, there are still risks to consider. Political uncertainty remains a key issue, and it is important to monitor any structural changes that need to be implemented for European companies to remain competitive. In the short term, there may be risks in some peripheral countries requiring additional assistance. However, the market is likely to focus more on the implemented measures rather than individual bailouts, which could lead to continued growth in the region.

Fidelity European Growth Fund Strategy

The Fidelity European Growth Fund focuses on bottom-up stock picking, meaning that the fund managers carefully select individual stocks based on their fundamental characteristics. In the case of the UK, which accounts for almost 40% of the fund’s exposure, the managers have identified companies that align with the fund’s investment criteria. These criteria include high quality, strong cash flows, growing earnings per share, and effective management. While the financial sector usually plays a significant role in many portfolios, the fund is underweight in this sector. This is because some financial companies do not meet the fund’s quality standards, and there are better opportunities available in other sectors.

Confidence in Fund Size

The Fidelity European Growth Fund is larger than most of its peers. However, the fund managers do not see the fund size as a hindrance to performance. They monitor the liquidity of the fund’s positions to ensure that they can effectively manage and exit investments if necessary. The fund’s size is seen as a vote of confidence, and as long as liquidity is maintained, the fund can continue to attract investors.

In conclusion, Europe’s markets have been quietly performing well this year, attracting investors who recognize the opportunities available in European equities. The Fidelity European Growth Fund follows a bottom-up stock picking strategy, focusing on high-quality companies within the European region. While the fund is underweight in the financial sector, it offers investors exposure to other sectors with better growth potential. The fund’s size is not a constraint, and the managers are confident in their ability to deliver strong performance. By staying informed about Europe’s structural changes and potential risks, investors can make informed decisions and capitalize on the opportunities in this region.