Eight questions for the AGM on 10 May 2022

In this note, we ask eight questions that we would put to the board at the forthcoming AGM on 10 May 2022. Given the extraordinary bull run in most global equity markets since the 2008 GFC and fears around a resurgence in inflation, a lot of this note and the questions will focus on the rapidly changing landscape, and how the fund has coped with periods of uncertainty and instability in the past. Hence, we look at FEV’s long-term track record, and remind investors of its philosophy and process.

• Bottom-up focus: Nobody has a crystal ball, and trying to forecast variables such as inflation, interest rates and market returns is a bit of a fool’s game. By focusing on stock-picking and downside risk, FEV has managed to successfully navigate extreme market turbulence in the past.
• Investment discipline: FEV’s key investment tenets around dividend growth are bottom-up stock-picking, a long-term focus (two to five years’ forecast horizon) and low turnover (typically around 20%-30% p.a.). This discipline through different market cycles has meant only short periods of underperformance.
• 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 8.5% is below long-run averages, and is in line with FEV’s peer group, despite the 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 be deviating from its tried and tested long-term process and philosophy.