Interactive Investor

Ian Cowie: here’s how I’m following the money

Our columnist explains how he is playing the increased wealth and outperformance of a country that’s been key to driving returns for an entire continent.

31st August 2023 08:59

by Ian Cowie from interactive investor

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Contrary to what critics of our continental cousins might expect, France now has more millionaires than any other country outside America and China, according to the UBS Global Wealth Report. The Swiss investment bank reckons (measured in US dollars) that there are now 2.82 million of these plutocrats in France, compared to 2.56 million here. For investors who believe it often pays to follow the money, it’s worth considering why that might be - and how investment trusts can help us buy shares in that wealth.

While the average ‘return’ over the last year across all the Association of Investment Companies (AIC) member trusts is a measly minus 5%, according to independent statisticians Morningstar, the AIC’s ‘Europe’ sector has done much better with an average positive return of nearly 17%. So much for Little Englander cliches about Gallic long lunches, La Vie en Rose, and a sluggish economy.

Au contraire, there is some evidence that the French are cashing our fabled Brexit dividends for us, as equities trading relocates from London to Paris. Since Britain’s decision to quit the EU, more than 5,500 highly paid financial sector jobs have been created in Paris, with JPMorgan, Bank of America, Citi and Goldman Sachs all adding to their payrolls in the French capital.

More positively, another part of the explanation for French outperformance can be found in luxury brands businesses, such as the Champagne and Cognac vintner LVMH Moet Hennessy Louis Vuitton SE (EURONEXT:MC) and the cosmetics giant L'Oreal SA (EURONEXT:OR). Both are enjoying resilient demand from the rich, despite a cost-of-living crisis for less fortunate folk, as I predicted in my interactive investor piece last May.

That’s when I reported: “While it’s food banks for the many, it’s luxury handbags and fine wines for a few as Paris - not London or Frankfurt - provides a stock market home for MC, Europe’s first $500 billion (£400 billion) business.

“Closer to home, as the Cockneys used to sing: Its the same the whole world over. Its the rich wot gets the pleasure. It's the poor that gets the blame. Ain’t it all a bleedin’ shame?

Unfair as that might be, it is all “très jolie” news for Fidelity European Trust (LSE:FEV), which delivered sector-leading returns of 23% over the last year; 65% over the last five years; and 196% over the last decade. That’s a remarkable hat-trick for this £1.7 billion investment trust.

Both LVMH and L’Oreal are among Fidelity European Trust’s top 10 holdings. This elite group also includes the Wegovy weight-loss wonder drug-maker Denmark’s Novo-Nordisk (NOVO), and the world’s biggest food company, Switzerland’s Nestle SA (SIX:NESN).

Both NOVO and NESN also happen to be among my own forever fund top 10 direct shareholdings by value. In addition to those two, I also hold another FEV top 10 favourite, the Franco-Italian spectacles giant Essilorluxottica (EURONEXT:EL), which is another of my direct holdings.

Sad to say, that triumvirate of duplication explains why I dithered about investing in FEV and didn’t take the plunge until April of this year, so I havent felt much benefit from that holding yet. But at least FEV is retaining its value and yielding 2.24% dividend income, after raising payouts by an impressive annual average of 12% over the last five years.

On the basis that it’s important to report the rough as well as the smooth of stock market investment, I had better emphasise that my European investment trusts have not always been so euphonious. For example, my European Smaller Companies AIC sector selection, European Assets (LSE:EAT) has proved a classic value trap.

I confess I was tempted by its unusually high yield for this sector, an apparently mouth-watering 6.7%, but I did not expect the capital return to be so shockingly negative. After paying 145p per share in August 2021, and adding more at 85p in October last year, EAT trades at a sickly 88p today, leaving me 33% down.

Even allowing for the fact that Europe’s worst war since 1945 is raging on the east of the Continent, EAT’s performance has been execrable. Fortunately, it never amounted to much more than 1% of my life savings, so I can afford to wait in hope.

Here and now, it remains un tres mauvais Cowie’s Clanger. Sacre Bleu!

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in EssilorLuxottica (EL), European Assets Trust (EAT), Fidelity European Trust (FEV), Nestlé (NESN) and Novo-Nordisk (NOVO) as part of a globally diversified portfolio of investment trusts and other shares.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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