Positioning for what lies ahead in 2023
In what has been a challenging year for the market as a whole, our exposure to US healthcare insurance (UnitedHealth and Cigna have both delivered positive share price performance YTD) has been very positive, along with names exposed to the growth in US infrastructure spending (such as Quanta Services and WW Grainger). Meanwhile, our interest rate sensitive names (emerging market banks like Bank Rakyat and HDFC, as well as German stock exchange Deutsche Boerse) have benefited significantly from higher interest rates.
Looking to 2023, we expect to be even more discerning on both valuations and the cyclicality of the businesses we own or look to add. Whilst we have sympathy with the view that most of the pain is behind us when it comes to the effect of rising interest rates on valuations, we still think that many high-growth parts of the market look expensive, particularly those unsupported by strong cash flow generation. We will remain focussed on finding companies with strong secular growth potential driven by the five key trends we invest behind, but that also produce significant cash for (ideally for reinvestment into the business at high returns), and trade at valuations that make sense even in this higher rate environment.
Sustainability considerations
Sustainability is at the centre of every investment we make. We combine a best-in-class approach (companies that operate their businesses in a sustainable fashion with strong governance) with an impact approach (companies whose products and services have the potential to make significantly positive contributions to the environment and society). This leaves us with a portfolio of 40-60 high-quality stocks that all make a significant contribution to a wide range of challenges facing us today such as decarbonising our energy supply, improving healthcare outcomes, improving energy efficiency, and bringing millions of under-served people into the formal banking and insurance market. Crucially, given our focus on companies with strong financial and valuation profiles, these are stocks we think have to potential to deliver this positive impact whilst also delivering good financial returns for shareholders.
We would expect the focus in 2023 to be on particularly on stocks involved in clean energy and improving resource intensity and productivity. With spiking energy costs globally, companies that can deliver low-cost energy, or offer products that can improve energy efficiency are likely to be in high demand, even against a backdrop of slowing growth. We think these categories, which represent close to 50% of the fund, will be interesting areas to watch in 2023.
Jamie Harvey, portfolio manager of the Fidelity Sustainable Global Equity Fund.
Learn more about the Fidelity Sustainable Global Equity Fund
Important information
This information is for investment professionals only and should not be relied upon by private investors. The value of investments can go down as well as up and you may not get back the amount invested. Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be interpreted as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Changes in currency exchange rates may affect the value of an investment in overseas markets. Investments in emerging markets can be more volatile than other more developed markets. The Fidelity Sustainable Global Equity Fund has the potential of having high volatility either due to its composition or portfolio management techniques. It can also use financial derivatives for investment purposes, which may focus on securities of companies which maintain strong environmental, social and governance (“ESG”) credentials may result in a return that at times compares unfavourably to similar products without such focus. No representation nor warranty is made with respect to the fairness, accuracy or completeness of such credentials. The status of a security’s ESG credentials can change over time. Issued by FIL Pensions Management, authorised and regulated by the Financial Conduct Authority and Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM1122/380668/SSO/NA