Should I stick with this ISA fund?

aroominyork

Identifying closet trackers is interesting. Take Fidelity European. Its top ten holdings are:

NESTLE S.A.	6.87%
ROCHE HLDG AG	5.23%
LVMH MOET HENNESSY VUITTON	5.07%
ASML HOLDING N.V.	5.04%
TOTAL SE	4.58%
NOVO NORDISK A/S	4.39%
SANOFI	3.51%
L'OREAL	3.05%
SAP SE	3.03%
ESSILORLUXOTTICA	2.91%

Compare that to HSBC European Index:

NESTLE S.A.	4.87%
ROCHE HLDG AG	3.42%
ASML HOLDING N.V.	2.89%
NOVARTIS AG	2.52%
NOVO NORDISK A/S	2.52%
LVMH MOET HENNESSY VUITTON	2.45%
TOTAL SE	1.82%
SAP SE	1.43%
SANOFI	1.34%
L'OREAL	1.28%

Pretty damn similar! But over the last ten years Fidelity has increased by 164%, the index by 130%. So what's happening? I think the answer is that the top ten are dominated by growth stocks and Fidelity is more concentrated in these; the divergence will be in the other stocks each fund holds. Most of the outperformance has been during the last five years which have been good for growth; during 2007-2017 there was little between the funds. However, during 2002-2007 Fidelity won by +170% to +125%. One conclusion would be that this active fund tends to either track or beat the index, and that makes it worth holding.

aroominyork

Following up my last post about Fidelity European's top 10 holdings looking like a closet tracker, I wanted to ask Fidelity about this. I couldn't find an email address so phoned today and eventually spoke to someone who said there is no contact point for retail investors and all he could tell me is that it comes down to the fund manager's discretion. This is disappointing customer service: during the last year I have contacted Liontrust and Capital Gearing and received full and helpful answers to technical questions. So I have little on which to base a decision about whether to switch to an index fund and save the charges; Fidelity's annual report does not list the holdings and while Morningstar shows an active share of 66.97% which suggests deviation from the index outside the major holdings, I do not know whether that stat/source is reliable.

wmb194

aroominyork said:

Following up my last post about Fidelity European's top 10 holdings looking like a closet tracker, I wanted to ask Fidelity about this. I couldn't find an email address so phoned today and eventually spoke to someone who said there is no contact point for retail investors and all he could tell me is that it comes down to the fund manager's discretion. This is disappointing customer service: during the last year I have contacted Liontrust and Capital Gearing and received full and helpful answers to technical questions. So I have little on which to base a decision about whether to switch to an index fund and save the charges; Fidelity's annual report does not list the holdings and while Morningstar shows an active share of 66.97% which suggests deviation from the index outside the major holdings, I do not know whether that stat/source is reliable.

Its most recent 2022 interim report doesn't list its entire portfolio but its 2021* annual report does - see from page 14. Looks like it's using some leverage as well so that might go some way to explain outperformance relative to the benchmark.

https://investment-trusts.fidelity.co.uk/fidelity-european-trust/?p=0&c=10#accordion-31309811

*Obviously a bit out of date but it must be due to report again soon and I doubt its holdings change very radically from year to year.

aroominyork

wmb194 said:

aroominyork said:

Following up my last post about Fidelity European's top 10 holdings looking like a closet tracker, I wanted to ask Fidelity about this. I couldn't find an email address so phoned today and eventually spoke to someone who said there is no contact point for retail investors and all he could tell me is that it comes down to the fund manager's discretion. This is disappointing customer service: during the last year I have contacted Liontrust and Capital Gearing and received full and helpful answers to technical questions. So I have little on which to base a decision about whether to switch to an index fund and save the charges; Fidelity's annual report does not list the holdings and while Morningstar shows an active share of 66.97% which suggests deviation from the index outside the major holdings, I do not know whether that stat/source is reliable.

Its most recent 2022 interim report doesn't list its entire portfolio but its 2021* annual report does - see from page 14. Looks like it's using some leverage as well so that might go some way to explain outperformance relative to the benchmark.

https://investment-trusts.fidelity.co.uk/fidelity-european-trust/?p=0&c=10#accordion-31309811

*Obviously a bit out of date but it must be due to report again soon and I doubt its holdings change very radically from year to year.

Thanks for this. I hold the open ended fund and not this IT (FEV) but the main holdings look very similar and I wouldn't be surprised if the other holdings are also, since the market cap exposures are very similar. It begs the question of the purpose of the IT - it's not as if it is a vehicle for holding less liquid companies; maybe it just satisfies people who prefer ITs. I guess the gearing is also a factor, which maybe raises a question of whether ITs will scale down gearing as money becomes more expensive and QE comes to an end.