Page 14 - DIY Investor Magazine | Issue 31

‘WHAT I’M LOOKING FOR ARE COMPANIES THAT CAN GROW THEIR DIVIDENDS ON A THREE- TO FIVE-YEAR VIEW’ LG: Are you seeing pricing power that would allow companies to generate more cash, which they could pay back to investors in dividends? SM: I think the pricing power is often very much a function of the company’s business and the strength of the franchise. With most businesses I invest in, pricing power is something I really focus on. Although when inflation and interest rates rise, I tend to lose out on the valuation side because a lot of these ‘steady eddy’ businesses get hit on a valuation basis. On the flip side, their earnings are much more robust than many others. Traditionally some companies haven’t had pricing power but now they do because of supply chain issues and the pandemic. The autos sector has some pricing power currently, for example, but you know it’s going to end. I’m very much a long- term investor so what I’m looking for are companies that can grow their dividends on a three- to five-year view. My question is about the sustainability of dividends. LG: If someone is not currently invested in European equities why should they consider them now – and why this investment trust? SM: I don’t have a huge amount of confidence in predicting what’s going to happen in terms of stock market directions or interest rates, etc. The pandemic has demonstrated that it’s foolish to believe we can predict what will happen. I would rather build a robust portfolio of companies that have a good long-term track record in terms of earnings, sales, dividend growth and cashflow growth, where I feel strongly they will be able to continue that track record. We’re not trying to shoot the lights out. Each and every year we’re just trying to add a little bit of extra performance relative to the benchmark. The beauty of this approach is we don’t have too many sleepless nights worrying that the portfolio will go off the rails. We invest in decent companies with good track records that we are confident can help us outperform a little bit each year. With the power of compounding that little bit of outperformance can deliver a very attractive return ahead of the benchmark over time. Find out more about Fidelity European Trust PLC here > Important information The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Overseas investments will be affected by movements in currency exchange rates. This trust uses financial derivative instruments for investment purposes, which may expose it to a higher degree of risk and can cause investments to experience larger than average price fluctuations. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser. The latest annual reports and factsheets can be obtained from our website at www.fidelity.co.uk/its or by calling 0800 41 41 10. The full prospectus may also be obtained from Fidelity. The Alternative Investment Fund Manager (AIFM) of Fidelity Investment Trusts is FIL Investment Services (UK) Limited. Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. DIY Investor Magazine · Nov 2021 14