Resilience in difficult markets – a half-year report

In our recent note, 'Eight questions for the AGM on 10 May 2022', we touched on the rapidly changing landscape after the extraordinary bull run experienced in most global equity markets since the 2008 GFC. In this note, we take stock, analyse how FEV has performed YTD and highlight a few of its investments as key examples of its philosophy and process. Despite the tough start, it is worth reiterating that FEV’s focus is on stock-picking and downside risk, and this should reassure investors that FEV is continuing to add value to investors over the long term.

• Difficult year so far: As of 26 September, FEV’s share price is down 19.5% YTD, slightly underperforming the index, which is down 17.4%. The discount to NAV is 11.7%. We remain confident about FEV’s bottom-up investment approach and long-term performance, despite the current macro challenges.
• Investment discipline: In this report, we focus on three of the fund’s investments as prime examples of FEV’s key investment tenets: a bottom-up process, which seeks out those companies able to grow dividends sustainably over a three- to five-year horizon. The result is only short periods of underperformance over FEV’s history.
• 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 11.7% is above long-run averages, and is below FEV’s peer group, but not by much, 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 deviate from its tried-and-tested, long-term process and philosophy.