A commendable performance in a difficult year

In our most recent note, Continued resilience in difficult markets | Hardman & Co (hardmanandco.com), published on 23 November 2022, we analysed how FEV had performed YTD, and highlighted a few of the macro issues that dominated the European equity markets during 2022. In this note, we look back at the 2022 performance, putting it in its longer-term historical context and comparing it with FEV’s peer group performance in 2022. We touch briefly on the outlook for 2023, but we also remind investors that FEV’s long-term track record is driven by bottom-up stock selection.

• Difficult year for equity markets: Despite the very challenging year for most equity markets, on a rolling 12-month basis, the Trust recorded NAV and share price returns of -3.6% and -3.8%, respectively, compared with -7.0% for the primary benchmark index. In our view, this is commendable amid volatile and downward-trending markets.
• Relatively good performance: In this report, we put the 2022 performance in the context of FEV’s historical performance and compare it with the performance of its peer group. We also remind investors that FEV’s managers are stock-pickers that focus on company fundamentals. This is where FEV’s long-term value comes from.
• Valuation: 99.9% of investments are valued using quoted prices in active markets (95% is realisable within five days). The NAV is “real” – so any discount is anomalous. The current discount of 7.4% is below the long-run averages, and below that of FEV’s peer group, which is warranted, given the much better performance.
• Risks: FEV has seen periods of underperformance when its investment style has been out of favour – typically, when the market’s preference has been for lower-quality, more cyclical stocks. Worries around performance are bound to resurface, given the current rotation, as well as the outlook for interest rates and inflation.
• Investment summary: FEV has outperformed its peers, benchmarks and UK indices over most time periods. Sentiment to Europe may vary – although we believe there is a perception vs. reality issue here. The current market jitters may lead to some return volatility, but, in our view, FEV’s long-term track record in a wide range of market conditions should reassure investors that the fund will not deviate from its tried-and-tested, long-term process and philosophy.