HEAD-TO-HEAD: Fidelity vs MFS

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Both funds belong to Morningstar’s Europe large-cap blend equity – defined as equities in the top 70% of the European equity market (including the UK), with no dominance in growth or value characteristics, Caquineau said.

By adopting a strict bottom-up investment process, these two funds typically hold about 60-90 stocks, with higher-than-category-average holdings in the small- to mid-cap space.

Equity style (as of November 30)

Source: Morningstar

What differentiates the two funds most is the management style – Fidelity has the more common practice of relying on the portfolio manager Victoire de Trogoff, while the MFS fund uses a team-based approach involving 10 analysts, as emphasised in the name of the product: “European research” fund.

The Fideilty fund is built around three distinctive types of companies: structural growth at reasonable price, cyclical growth, and special situations, he said.

It has a turnover rate over 100% per year. “It still holds core holdings in the long run, but meanwhile some short-term tactical allocations are made, for instance, cyclical bets.”

However, the portfolio manager made the wrong call on Brexit. In early 2016, she had ruled out a “leave” vote victory and subsequently the fund performance declined, he added.

“The MFS portfolio is constructed using the best ideas from the analysts, and each analyst is given the freedom to use his or her own models for research. Then, stocks enter the portfolio via a majority voting system at the team’s weekly meeting,” he explained.

Using this approach, “the fund has typically exhibited a quality bias as the team seeks companies with above-average sustainable growth, high-quality returns, and sound management”, Caquineau continued.

It also tends to have a buy-and-hold approach with a long-term horizon. Hence the annual turnover rate is lower than the Fidelity product, he noted.

Both funds do not deviate too much from the benchmark, MSCI Europe Index, in terms of country and sector exposure.

“The tilt towards small- to mid-cap names reflects their use of a bottom-up approach with a large investment team,” Caquineau said.

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