Fidelity European Trust (LSE:FEV) trailed its benchmark in the first half of 2026 while lifting its interim dividend, and Alexander Laing joined the Portfolio Management team this month ahead of Sam Morse's planned retirement.

Fidelity European Trust (LSE:FEV) has entered a period of transition. Alexander Laing was due to join the portfolio management team on 1 November, the company said in its half-year report on 7 September, as part of the preparations for Sam Morse's planned retirement in October 2027.

The succession plan comes after a half in which the trust (LSE:FEV) fell short of its index. In the six months to 30 June, the net asset value total return was 6.4% and the share price total return 5.2%, compared with 10.3% for the FTSE World Europe ex UK Index. The share price lagged the NAV because the discount widened over the period.

Net asset value per share rose to 455.16p from 434.39p at the end of December. The discount stood at 5.2% on 30 June, considerably narrower than the sector average of 12.5%. The board's stated policy is to keep the discount in the mid-single digits under normal market conditions.

About the company

Fidelity European Trust is a closed-ended Investment trust listed on the London Stock Exchange and part of the FTSE 250. It aims to deliver long-term Capital growth, along with a growing dividend, by investing mainly in larger and medium-sized companies across continental Europe, excluding the United Kingdom. Its comparison index is the FTSE World Europe ex UK Index.

The trust earns no Revenue from products or services. Its returns come from share price gains and dividends on the portfolio, which is built around stock selection and a measured use of borrowing. The managers favour companies with sustainable competitive positions, sound balance sheets and the ability to compound earnings, and they combine this with in-depth company meetings and the wider reach of a large global investment organisation.

Financial data for the first half of 2026 show the trust trailing its index, with a net asset value total return of 6.4% against 10.3%. Net asset value per share rose to 455.16p from 434.39p, the discount was 5.2% at 30 June, and the Interim Dividend was raised 7.7% to 4.20p. Gross asset exposure of 110.8% of shareholders' funds shows the extent of gearing in use.

Winners and laggards

ASML was the best relative contributor, adding 1.9 percentage points. TotalEnergies and Veolia also added value, and the managers benefited from not owning LVMH or Rheinmetall during the period.

Partners Group and 3i Group were the largest detractors, costing 1.0 and 0.9 percentage points respectively. SAP, Novo Nordisk and EssilorLuxottica also weighed on returns, and the managers sold the Novo Nordisk position in March.

Gross asset exposure was 110.8% of shareholders' funds at the end of June, and the managers said that gearing had helped performance. They have added to artificial intelligence and data centre exposure and to European banks during the year, and have started a position in the defence electronics group Hensoldt.

The European market backdrop

Europe offers a broad range of global leaders in sectors such as semiconductor equipment, luxury goods, healthcare, industrials and financial services, and many earn a large share of revenue outside the continent. That means a European portfolio is often exposed to global demand, currency movements and Interest Rate expectations as much as to local conditions.

Style also matters. Quality-focused strategies can lag when markets are led by cyclical or defensive-value areas such as banks, energy or defence, and may recover when Earnings reliability is rewarded. The managers' additions to banks and defence electronics show some willingness to adapt the approach to changing market leadership.

Succession and what comes next

Manager transitions are an important moment for any actively managed vehicle, since the process and people behind a record are central to why investors hold the shares. A long handover period is designed to preserve continuity and allow the incoming manager to build knowledge of the portfolio and its holdings.

Further points to follow include the pace of board refreshment, the level of the discount relative to its mid-single-digit objective, the dividend path and the effect of higher bond yields on valuations. The next set of results will show how performance relative to the index develops during the transition.

Valuation and income

The interim dividend was raised by 7.7% to 4.20p from 3.90p. It went ex-dividend on 17 September and was paid on 23 October. The managers said that the trust's Dividend Yield is now broadly in line with that of the market, whereas it has historically been between 5% and 15% lower. They described their strategy as unusually attractively valued relative to its history, and said they remained positive about long-term prospects.

Board changes are also under way. Paul Yates left at the Annual General Meeting in May, and Fleur Meijs and Rutger Koopmans will retire at the May 2027 meeting. Davina Walter signed the report as chairman.

Rising bond yields since the period ended have made the European market backdrop less straightforward, since higher yields can act as a drag on stock valuations, although financials, including the banks to which the managers have added, can benefit from higher rates.

For a trust whose board is committed to managing its discount, the handover of responsibility will be watched closely. The extended period of overlap ahead of Mr Morse's departure, of almost a full year, gives the FTSE 250 constituent time to introduce Mr Laing to shareholders and to demonstrate continuity in an approach that has long been built around stock selection and a measured use of gearing.