Ian Cowie: why I’m bullish on prospects for this area

Terry Smith is probably Britain’s best-known and most widely followed fund manager, so it’s always pleasing to learn that he’s begun buying one of this modest DIY investor’s more successful long-term shareholdings. Better late than never, eh?

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Joking aside, the Fundsmith Equity supremo’s new stake - disclosed in his 2025 first-half report this week (and covered on interactive investor) - has got off to a flying start with news that the Facebook and Instagram owner, Meta Platforms Inc Class A (NASDAQ:META), has also bought a €3 billion (£2.6 billion) stake, causing the share price to spike 6% higher as I write (9 July).

It all adds up to several good reasons to reconsider European investment trusts for a unique combination of world-leading luxury brands and artificial intelligence (AI) new technology.

To be specific, Smith and Facebook founder Mark Zuckerberg are filling their boots with shares in Essilorluxottica (EURONEXT:EL), the Paris-listed Franco-Italian eyewear giant that is little-known in Britain but makes about a third of all the optical lenses on this planet. That’s what got me interested more than six years ago, when I invested 2% of my life savings at €96 in March 2019, for shares that cost €253 today.

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Back then, my reasoning was that older, wealthier global populations were spending more time looking at small screens and so were less likely to put up with the poor eyesight that used to be regarded as an inevitable part of old age. Since then, EssilorLuxottica’s joint venture with Meta to make AI-enabled Oakley and Ray-Ban specs, its two biggest brands, have added extra excitement.

Now this stake is the fourth most-valuable shareholding among 50 in my forever fund and is also listed among the top 10 underlying assets of Fidelity European Trust Ord (LSE:FEV). This investment trust is another favourite holding of mine, because it diminishes risk by diversification and yields just over 2% net dividend income, which has risen by an annual average of 7% over the past five years.

By contrast, EssilorLuxottica yields 1.65% gross income before deduction of French withholding taxes. Worse still, that’s without any five-year track record of sustained increases, according to LSEG, formerly the London Stock Exchange Group.

More happily, Fidelity European’s top 10 holdings also include the Danish weight-loss wonder drug-maker, Novo Nordisk AS ADR (NYSE:NVO), which is another direct investment that Smith and I have in common. I paid $73 for the American depositary receipts in February 2021, before flipping into the Copenhagen-listed shares at Danish kroner 254 in June 2021, allowing for a subsequent stock split. Then I took profits by selling nearly half of them at DKK 926 last August.

That was just as well because Trump tariffs and other worries have caused the NOVO price to plunge to DKK 444 (£51) this week, prompting Smith to complain about its recent poor performance. I continue to hold just over 2% of my life savings in NOVO but am grateful for Fidelity European’s much less volatile exposure to this sector. Its other major stakes include ASML Holding NV (EURONEXT:ASML), the Dutch firm that makes machines that make microchips; Nestle SA (SIX:NESN), the Swiss food giant; and L'Oreal SA (EURONEXT:OR), the French cosmetics company.

Sad to say, such diversification has not delivered top performance recently, with FEV’s one-year return of 4.7% ranking fourth in its sector behind the leader JPMorgan European Growth & Income Ord (LSE:JEGI) with 23% over the same period; followed by Baillie Gifford European Growth Ord (LSE:BGEU) with 9.6%; and Henderson European Trust Ord (LSE:HET)  with 9.3%.

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Even so, FEV’s five-year return of 73% gains third place behind JEGI with 120% and HET with 87%. Over the past decade, FEV stands second with 196%, just behind BlackRock Greater Europe Ord (LSE:BRGE) with 197%.

While FEV’s future returns remain unknowable, its costs seem set to fall as part of its proposed combination or merger with HET, announced and reported last month. For example, if the deal is approved by both sets of shareholders, the annual management fee is likely to be 0.7% for assets under £400 million, 0.65% for assets between £400 million and £1.4 billion, and 0.55% for assets over £1.4 billion.

The net effect is expected to make the biggest fund in the Association of Investment Companies (AIC) “Europe” sector even bigger, with total assets of about £2.5 billion, and to cut its yearly ongoing charges from 0.76% to 0.68%. That sounds like more for less and this small shareholder intends to support the proposal when we vote in September.

Never mind little old me. If Smith and Zuckerberg are right, European funds in general and EssilorLuxottica shares in particular might be about to come into much sharper focus.

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

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