Fidelity's Morse clashes with Cazenove's Rice on Nestlé

Fidelity European fund manager Sam Morse has clashed with peer Chris Rice at Cazenove over the outlook for key European stock Nestlé.

Morse, running the £2.3bn European fund, has an overweight to Nestlé compared to the MSCI Europe ex UK benchmark, with 7.9% of his fund invested in the stock.

Morse (pictured) is 3% overweight compared to the benchmark in the food manufacturing giant, and it represents his largest position, despite a valuation other investors have said looks top heavy.

The manager said the stock remains attractive despite a normalised P/E ratio of 18.3 times for the last fiscal year (according to Reuters).

"I do not think Europe will see a renaissance in economic growth so I am underweight in peripheral Europe," he said.

"Generally I do favour companies that are more global. Nestlé's valuation looks high relative to the market, but I still find it attractive, and attractive relative to companies like Unilever, which I do not hold."

Morse's stance on Nestlé - which has seen shares climb 1.8% in the last 12 months in the face of sharp falls in European equity markets - is in contrast to Rice, running the group's £785m European fund.

Rice said late last year there has been an "arms race" to get as much Nestlé into portfolios because of the company's defensive characteristics.

As a result, he started trimming his position back, and currently has around 3.7% in the company (as at end of December).

Rice said at the time: "There has been an arms race to get as much Nestlé as possible into your portfolio. It is now on a trend P/E of 18 times, which is more than twice the market P/E of 7.7 times," he said.

Rice went underweight the stock back in October, as well as moving underweight food producers as a whole.

Both managers have outperformed in the last year compared to the IMA Europe ex UK peer group, with Morse seeing a loss of 13.8% and Rice shedding 15.4%, compared to a sector average loss of 15.7%.

Morse said the last two years have been difficult for Europe, but added with valuations much lower, a lot of the woes in the region were more than priced in.

"A lot of that fear is now reflected in valuations, and although there are still big risks, there are big rewards," he said.

Within his fund, Morse is maintaining an overweight to financials - in companies including BNP Paribas and UBS - with valuations of many banks flagging them up as attractive opportunities.

"2012 will be a difficult environment but many financials are now discounting the possibility of a number of share issues," he said.

"I am focused on companies where you should be paid dividends, and where there is a chance for them to grow dividends."