Investments

Long-term prospects in European stocks are offered by the Fidelity European Trust

By Kaylie Pferten 08 Aug, 2026
Long-term prospects in European stocks are offered by the Fidelity European Trust
According to Kaylie Pferten, Fidelity European Trust has a solid long-term track record even tho it faltered last year

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The lead manager of the Fidelity European Trust (LSE: FEV), Kaylie Pferten, is unfazed by assertions that Europe's economic performance and prospects are as dire as those of the United Kingdom.

He concurs, saying that "Europe is plagued by poor demographics, low productivity, and high government debt, none of which are getting any better." The per capita economic output is half that of the United States. However, since only a third of their turnover comes from Europe, European stocks are not indicative of their economies. "Now more than ever, we are optimistic."

On the macro front, he sees five reasons for optimism. "Europe is spending more on defense, European integration is tightening, a significant savings rate needs to be mobilized, Germany's fiscal brake has been lifted, and Mario Draghi's report on EU competitiveness promises to reduce red tape. As a result, "we are overweight domestic Europe for the first time" and "the GDP growth gap will not continue to widen."

For Fidelity European Trust, the year was a letdown.

Fidelity European Trust is now a £2.2 billion investment trust after merging with Henderson European Trust almost a year ago. It yields 2.3% and trades at a modest 5% discount to net asset value (NAV). Although it has performed exceptionally well since its launch in 1991 (13.2 percent annually compared to 9.5 percent for the FTSE Europe ex-UK index), it has lagged the index by 10 percent over a year, 13 percent over three, and 12 percent over five. Accordingly, it is 11%, 31%, and 33% behind JP Morgan European Growth and Income (LSE: JEGI).

Sam Morse, another portfolio manager, blamed "limited exposure to defense stocks, holdings in Novo Nordisk, chemical producer Symrise and software company SAP" for last year's underwhelming performance in the most recent annual report. Wegovy, Novo Nordisk's weight-loss medication, helped the company soar, but it fell 75% from its mid-2024 peak before making a minor comeback recently. SAP has been negatively impacted by worries that AI will cause established software companies to lose business. Having sold Novo Nordisk the previous year and SAP early last year, JP Morgan European Growth & Income had demonstrated greater agility.

Nevertheless, every manager has a bad year, and Stotzel will undoubtedly maintain the long-term record by getting performance back on track. He concentrates on "businesses that can grow dividends sustainably for three to five years." As an illustration, consider Inditex, the company that owns the Zara chain, which continued to produce its goods domestically and in North America rather than outsourcing them to China. Better quality control, reduced waste, quicker delivery, and greater flexibility are all made possible by this.

Other major holdings include the pharmaceutical company Roche, the oil and gas company TotalEnergies, the cosmetics giant L'Oral, and ASML, which has a near-global monopoly in the supply of machines for manufacturing semi-conductor chips.

Is investing in Fidelity European Trust a good idea?

According to Stotzel, the portfolio is trading at no more than the historic valuation of 18 times earnings, but it has a better return on capital and dividend growth than the market. In general, European stocks are no better than fair value; however, if Stotzel is correct and economic growth picks up, investment returns should continue to be strong and earnings growth should accelerate. If Europeans' long-standing reluctance to invest in stocks lessens, there would be an additional boost.

Stotzel's claim that Europe's economy is improving in comparison to the US may turn out to be optimistic, but it is more realistic than any claim for the UK, whose market investors are still loyal to their country. Europe offers managers a better option for long-term investment because it is a much bigger and more expansive market than the UK, with many more growth stocks. While investors in JP Morgan European Growth & Income must hope that pride doesn't come before a fall, Fidelity European Trust has a strong long-term record despite its recent setback.