Fidelity European Trust plc (LON:FEV) portfolio managers Sam Morse and Marcel Stötzel share their outlook for 2025 and provide an insight into how they are looking to position the portfolios against an evolving macroeconomic backdrop.
What is your outlook for your asset class?
We remain cautious in the near term. Markets are still expensive, and the pace of rate cuts from central banks could disappoint, with inflation ticking up again and yields also rising. This means that refinancing poses a significant challenge for many companies next year. On top of this exporters face headwinds from higher US tariffs, although we are underweight areas like autos and spirits which could be more heavily affected.
We could see the market react positively if actual tariffs are less severe than expected. On a strategy level our luxury holdings are the most exposed to tariffs. However, we are defensively positioned within this category – more towards top end luxury – where customers are more price insensitive, meaning tariff costs can be passed on relatively easily to consumers. If inflation in Europe is subdued, this will allow for further rate cuts, while fiscal stimulus in the US and China could be a positive for European exporters going into 2025.
Negative surprise potentials are essentially the flip side of the above – high tariffs and deepening ‘trade wars’, and sticker than expected or even rising inflation. Geopolitically, unexpected developments in Ukraine or the Middle East could pose risks. Europe, as a net energy importer, is particularly vulnerable to energy price spikes that could occur from any worsening Middle Eastern crisis.
