Best in Class: Fidelity Global Special Situations
Do not believe the hype. That seems to be the slogan behind the strong recovery we have experienced in global markets since the sell-off in February and March.
The truth is, we have seen a unique sell-off followed by a unique recovery thus far.
Take growth and value as a good example. The market rise from March lows has been led by growth and quality names.
However, momentum was switched quickly in May as investor optimism on an economic rebound brought about a brief rise in bond yields – the result was an almost equally brief rotation back to value stocks, which has now largely reversed.
The growth-value debate has dominated in the past few years – and it is as prominent as it has ever been at the moment, as low interest rates and large chunks of Quantitative Easing bolster the financial system once again.
There have been plenty of headlines claiming value is either dead, dying or dormant – but others believe the outlook is changing and that the catalyst for value is that it is now simply too cheap to ignore.
But very few, if any, can spot the catalyst for a change in style momentum, therefore, a fund which is style agnostic could be the solution for many investors.
This week’s best in class is the Fidelity Global Special Situations fund.
It has a pragmatic manager in Jeremy Podger who does not stick too rigidly to one particular investment style. Jeremy took over the management of this fund in 2012 and has previously worked at the likes of Threadneedle and Investec.
While he is aware of macroeconomic events, his ideas are driven at the stock level by Fidelity's large team of global analysts.
Investments fall into one of three buckets: corporate change - shorter-term investments which take advantage of corporate restructuring or initial public offerings; exceptional value – cheap stocks which have a potential to grow earnings; and unique businesses – companies with a dominant position within their industries.
Initially, the team will cut the universe to those stocks which have a free float of at least $1bn to maintain liquidity. Many ideas come from Fidelity’s global team of research analysts, who have over 3,000 stocks on record.
Meetings with companies will also throw up ideas, such as competitors or supply chains, as well as some ideas from quantitative screens. This brings the universe down to about 150 realistic investment opportunities.
The company’s financial model, the structure of the industry it is in, and its risk profile are also considered.
Bespoke valuation models will then be used to identify any potential upside to the current share price, as well as comparing the company’s relative attractiveness against its history, its competitors and against the fund’s existing holdings.