Winner of Best Global Equity Fund - Fidelity Global Focus A-DIST-USD
Inception Date: 2003-01-14
Morningstar Rating (2020-02-29): ★★★★
Manager: Amit Lodha
Q1) Can you highlight any major changes you made to the portfolio over the course of 2019? Were there any particular holding(s) or theme(s) that drove the fund’s performance for the year?
The fund delivered strong positive returns and outperformed the index during an eventful 2019. Investor sentiment improved towards the end of the year as the US and China announced an agreement on a ‘phase one’ trade deal, easing tensions over an 18-month trade dispute that unnerved financial markets. An accommodative stance by global central banks also supported equity markets.
It has been satisfying to say that strong security selection across sectors and geographies aided performance during the period. One notable change made over the year included adding exposure to high conviction information technology (IT) names, particularly electronic equipment makers and semiconductor names. These companies rallied on a broader recovery and witnessed robust demand trends and growth in total addressable markets. The exposure to Leidos Holdings and Booz Allen Hamilton, both of which are IT services providers to the US government, also gained on strong execution, a growing backlog, improving win rates, and a higher share of critical (defence and intelligence) projects.
Within financials, my endeavour to maintain a well-diversified exposure to high quality franchises aided returns. The fund’s financials holdings include a combination of banks (strong balance sheets, clear earnings drivers, led by management teams with proven track records), diversified financials (brokerages and exchanges most resilient in volatile market conditions) and insurers (beneficiaries of niche business lines and under penetration in emerging markets).
Being a bottom up stock picker, I continue to believe that companies with strong management teams that have solid execution capabilities, operate in a good industry structure with a robust portfolio of products and services remain the key drivers of success. Added to this, with the pace of disruption and change rising, my focus remains on investing in undervalued managers with an ability to adapt and change to the ever evolving marketplace environment through consistent innovation, as reflected in some of my high conviction holdings.
Q2) What are some specific opportunities you have identified for 2020, and do you expect your 2019 outperformers to persist in 2020? What are the top risk factors that could impact your portfolio, and how are you positioned to mitigate these potential risks?
Q3) In which areas do you think risk is over/understated with respect to (i) the outcome of the US Presidential election, (ii) persistently loose monetary policies by major economies, (iii) Coronavirus impact on global growth, and how are you expressing these views in your portfolio?
Global risk aversion has intensified since the beginning of 2020, with uncertainty over the US Presidential elections, ultra-loose monetary policies by major central banks, and the spread of the novel coronavirus globally, posing risks to the already fragile global economic backdrop.
I believe the risks related to the 2020 US Presidential elections and the potential for a lot more domestic political noise in the US are understated. This is reflected in the fund’s consistent underweight in the region, and overweight exposure to other attractive parts of the global equity markets (Europe and Japan).
I also think that the ultra-loose monetary policies adopted by central banks, with more than 25% of government bonds in negative yielding territory, can create volatility in the medium-to-long term. Though renewed co-ordinated global easing since January 2019 has supported earnings and valuations for the time being, the downside risks have become conspicuous as banks are left with little firepower to counter uncertain economic threats such as those posed by the novel coronavirus.
The outbreak of the novel coronavirus clouds the outlook for the global market as it is difficult to estimate the extent of the eventual spread of the infection and the damage it may cause in a well-connected world. While the outlook for individual companies and sectors may be affected to varying degrees, our positive medium-term assessment of equity markets in general should remain intact. Some of the areas where we see potential buying opportunities after a broad-based selloff include online education service providers; online grocery, ecommerce and express delivery; and innovative health care solution providers as well as beneficiaries of stimulus (such as industrials and materials).
I am cognisant of the risks and seek to maintain the warranted discipline around identifying pockets of stability (good businesses run by competent managements with limited political risk and impact from regulation) and the valuations paid.
Q4) How is your investment team organized? Have there been any changes to the investment team or structure over the past year? Do you anticipate adding to the team in the near future?
For Global Focus Fund, I am the sole Portfolio Manager and have the ultimate responsibility for selecting the stocks for the portfolio. In managing the fund, I rely on the expertise of our global sector/thematic portfolio managers who discuss and debate the best global ideas for their respective sectors.
In addition to the sector portfolio managers, the Fidelity global equity team also consists of seven other global portfolio managers, each with a distinctive approach.
The foundation of our investment team rests on Fidelity’s research platform, which Fidelity has developed into one of the industry’s largest research operations, employing 150+ locally based equity research professionals globally. The strength and depth of the Fidelity research platform means that there will always be enough strong investment ideas to build a fully diversified portfolio at all points of the market cycle.
There have been no changes in the portfolio management team for Global Focus strategy.
Q5) Where do you feel that the investment team or the investment process can be improved upon in the future?
At Fidelity, we have a culture of seeking continuous improvement in our resources, investment process, and the technology tools. We believe that our competitive advantage lies in a global research effort that constantly tests and builds on our view of a company by cross-referencing findings and insights from across the ecosystem enabling us to separate the wheat from the chaff.
We continue to invest in improving our technological capabilities and tools to augment our existing portfolio management capabilities. We feel that equipping our clients with an informational / analytical edge is critical to their long term success and we have been evolving these processes for a considerable time. For example, the companies’ ESG practices form an integral part of our assessment of their corporate fundamentals. As a testament to our commitment on this front, Fidelity launched its proprietary sustainability ratings in 2019. Comprising Fidelity’s equities and fixed income coverage universe of over 3,000 issuers, the sustainable ratings leverage Fidelity’s extensive research capabilities and ongoing engagement with management teams to provide a forward-looking evaluation of a company’s performance and trajectory on ESG-related issues. We believe that integrating ESG into our analysis and portfolio construction ultimately help achieve enhanced insights, which should in turn allow us to deliver superior and sustainable investment outcomes for our clients.
There are continuous improvements and upgrades made in Fidelity’s research management platform (Fidelity Insight), which provides our portfolio managers with up-to-date access to internal professional analysis, across countries, sectors and stocks.
We have invested in developing behavioural finance tools to manage our investing biases in order to improve portfolio management decision making.
We also continue to build our Primary Research capabilities to uncover new evidence that helped validate our views and address the questions that help us find the edge. The proprietary Primary Research and our cross-functional, collaborative Fundamental Equity Research team have contributed to a number of success stories in our client portfolios. Needless to say, our corporate access based on long-lasting relationships with management teams globally, our ability to access a large network of sectoral experts and industry leaders has also strengthened our capability to unearth alpha for our clients.
View all Morningstar Singapore Fund Awards 2020 articles here.