Novo Nordisk has been one of the few shining lights in the Fidelity European (FEV ) portfolio after markets sold off in response to poor Chinese data and concerns the US Federal Reserve would sustain high interest rates for longer.

Shares in the Danish healthcare company soared to a record high earlier this month after it published trial data showing its obesity drug Wegovy cut the risk of serious cardiac events by 20%, which should persuade more health systems and insurers to cover the costs for patients.

Largely as a result of the trial, Novo hiked its forecast sales growth to 27%-33% this year and operating profit to 31%-37%, far ahead of previous guidance.

Following the announcement, fund managers Sam Morse and Marcel Stötzel trimmed their position, which accounted for 4.7% of the £1.4bn portfolio at the end of July.

‘If you are an insurer, it is hard to say no practically and it could be in their favour because although it is expensive, it might be better than having a patient in and out of hospital with heart problems,’ said Stötzel (pictured at a recent Citywire event).

The FEV portfolio of dividend-paying large companies with a slight growth tilt had a solid first six months of the year, according to interims a few weeks ago, delivering a total underlying return of 11.1%, which beat the FTSE World Europe ex UK index’s 9.3%. The shares matched the index.

Top performers include FTSE-listed private equity trust 3i Group (III ) and Dutch chipmaker ASML, while Finnish insurance company Sampo fell off the back of disappointing results.

However, since then European indices, which are more sensitive to global economic cycles than the US, have fallen sharply, with the trust’s ex-UK benchmark down 4.9% in August, according to Morningstar.

Stötzel emphasised that investing in European stocks is not a play on the European economy, given a large chunk of revenues come from abroad. He noted that US consumers with savings from the pandemic have taken advantage of a weak dollar and bought luxury goods in Europe.

Chinese consumers will also continue to do this over the medium term because of their own savings and growing middle class, he said.

He also pointed out that Europe had rebounded ahead of the artificial intelligence rally earlier this year when the MSCI Europe rose above the US 100-week moving average, driven by revenues from outside Europe.

Source: Fidelity; data as at 29 June 2023

Financials make up the largest sector weighting at 21% of assets, which includes insurers, private equity and banks. 

Aside from Sampo, Spanish bank Bankinter was one of the biggest detractors in the wake of the collapse of Silicon Valley Bank in March. Investors worried it was the European equivalent of a US regional bank with a deposit base that might prove less sticky than other European banks, given its recent growth and more sophisticated customer base, Stötzel said. 

The trust, which is significantly bigger than its sector peers, has a strong long-term track record, with five-year and ten-year shareholder returns putting it top of its peer group, according to AIC data. 

Ten years of Fidelity European

Source: Morningstar