FIDELITY EUROPEAN W

Investment Process

The management team holds three key investment principles. These are having a bottom up stock selection process focussed on dividend growth, believing that a long-term investment time horizon improves performance and reduces costs, and that concentrating on downside risk creates a foundation for long-term outperformance. When it comes to stock selection the team looks at four key areas: Positive fundamentals – companies with good track records, structural growth, high return on capital employed (ROCE) and prospective dividend growth; Cash generation – a robust level of cash generation relating to profitability; Strong balance sheet – the management team dislikes highly leveraged companies, instead looking for firms that can reinvest profits; Attractive valuation – the team looks for quality at a reasonable price. Morse has a very disciplined approach to portfolio construction. Although he wants the three key principles to drive investment returns, he doesn’t want to take very large stock or sector bets that will determine the success or failure of the fund. As such the portfolio has a stock limit which means that holdings can only have a 3% active position against the benchmark, whilst sector weights are limited to a 5% active position. Its main sector exposure at present is financials, followed by healthcare and information technology. There are four main reasons for selling a position from the fund – a significant change that adversely impacts the investment thesis, the price reaching an unattractive level, an adverse move in fundamentals such as balance sheet weakness, or a more attractive opportunity arising elsewhere.