Fidelity: Outlook for European equities

Despite the uncertain economic outlook there are still opportunities to seek absolute value in stock selection and attractive total returns in European equities and their related securities, says Anas Chakra, portfolio manager of the Fidelity FAST Europe Fund.

"I am overweight in those areas of the market where I can find genuine value, and where I think that the market is overly pessimistic. A good example is the telecom service sector. Investors are concerned that companies in this sector face challenges in the form of EU regulations and consumers cutting back their spending during a recession. However telecom spending is actually a small and fairly inelastic part of total spending and surveys show that consumers are more likely to cut back on a range of other goods and services first.

"The healthcare sector is also interesting as it has derated over recent years due to increased generic competition and patent expiries on blockbuster drugs. However on closer inspection not all companies are equally challenged on patent expiries. There are some very good companies at attractive valuations that offer high visibility of earnings which is attractive in the current environment. Roche is one of my favoured holdings in the long portfolio as it offers a reliable earning growth profile within a slowing economic environment.

"In terms of shorting opportunities I am finding some attractive candidates in real estate, where I still think stocks are overvalued. Many of these companies have large central costs that used be justified by development profits, but over the next few years this source of profits is likely to be negatively impacted.

"The portfolio overall is still conservatively positioned. I'm only comfortable putting stocks in the portfolio where I think there is a genuine absolute profit and where I'm paid for the risk of owning the stock and rewarded with good risk/reward ratio."

Like other actively managed Fidelity equity funds, the engine behind the performance of the FAST Europe fund is the group's stock research. But the manager can also employ additional derivative based leverage and also synthetically short individual stocks, in order to pursue additional sources of return for fund shareholders.

Chakra commented:The Fidelity FAST Europe Fund is a concentrated portfolio investing primarily in equities of European companies and their related securities, selected through a bottom-up approach. In challenging market conditions, the Fund has continued to meet its brief of generating alpha that exceeds the performance of the underlying market. Since its launch in October 2004 the Funds has delivered an impressive 78.1%, more than 48.5% ahead of its benchmark the MSCI Europe.

Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity.