London, 9 June 2008 – Tim McCarron, manager of Fidelity’s £4.7 billion* European Fund, is currently finding opportunities in emerging markets through both direct and indirect investments.
Within his direct exposure to emerging markets, Tim has a specific focus on Russia, where the continued high price of oil is helping to bolster the local economy. “An example of a Russian stock I hold is Sberbank.” comments Mr McCarron. “The company is benefiting from its status as a leading domestic bank in a relatively under-penetrated market and is successfully meeting the needs of Russians, whose disposable income has increased.” He is also invested in Gazprom, which is enjoying a near monopoly in Russian gas exports.
Mr McCarron is also getting indirect exposure to emerging markets through established companies in continental Europe. Four of the FIF European Fund’s five largest holdings generate a proportion of their revenues from emerging markets. Roche, the Swiss pharmaceutical company, generates 16% of its sales in Latin America, Asia Pacific and developing Europe. E.ON, one of the largest power companies in Europe, gets 5% of its total revenues from emerging Europe. Suez, a major player in both the energy and environment space gets 11% of its revenues from developing economies, such as Brazil, China and the Middle East.
Telefonica, the third largest holding in the fund, has seen its profit margin increase significantly, as it has expanded into emerging markets and now generates a significant proportion of its revenues from these economies. Over 35% of its revenues come from Latin American countries including Venezuela, Mexico and Brazil and the amount of revenue it receives from its home market – which stood at 59% in 2000 - has fallen considerably and is expected to be just 32% in 2010.
“I my view, this Spanish telecommunications firm is a more lucrative opportunity than buying an emerging market company that is trading at a premium. Indeed, Telefonica was valued at a price to earnings ratio of 10x at the end of April, a 39% discount to the MSCI Emerging Market Latin American Telecommunication Services Index.” he comments.
How these themes are playing out in the fund
- More than half of the portfolio is made up of companies which have some exposure to high-growth markets, such as Emerging Europe, Asia, Central and South America, Africa and the Middle East
- Almost one third of the portfolio is made up of companies which generate notable revenue streams from their operations in emerging Europe
- 8.3% of the portfolio is made up of companies based in emerging economies giving Tim some direct exposure – this is an increase from 2.3% a year ago
About FIF European Fund
The fund aims to achieve long-term capital growth from a portfolio primarily made up of the shares of continental European companies. The portfolio is managed with a value bias, with one or more of the following characteristics typically found in companies selected for investment: undervalued stocks, growth at a reasonable price and turnaround situations.
FIL Limited (“FIL”) and its subsidiary companies serve the major markets of the world by providing investment products and services to individuals and institutional investors outside the US. FIL Limited manages a total of £130.4 billion of assets**.
Notes to editors:
* Source: Fidelity as at 31.05.08
** Source: Fidelity as at 31.03.08
Any opinions expressed are made at the time of writing and can be subject to change without notification. Past performance is not a reliable indicator of future results. The value of investments and the income from them can go down as well as up and investors may not get back the amount invested. For funds that invest in overseas markets, changes in currency exchange rates may affect the value of an investment. Investments in small and emerging markets can be more volatile than other more developed markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity.
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