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GLOBAL EQUITIES
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Important information This material is for Investment Professionals only and should not be relied upon by private investors. Past performance is not a reliable indicator of future returns. The value of investments can go down as well as up and your clients may get back less than they invest. The Fidelity Global Special Situations Fund invests in overseas markets and so the value of investments can be affected by changes in currency exchange rates. This fund also invests in emerging markets which can be more volatile than other more developed markets. The Fidelity Global Special Situations Fund can use financial derivative instruments for investment purposes, which may expose it to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Investors should note that the views expressed may no longer be current and may have already been acted upon. Investments should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document and annual and semi-annual reports, free of charge on request by calling 0800 368 1732. Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbols are trademarks of FIL Limited. UKM0418/21773/SSO/NA
Welcome
The absence of earnings growth in the years following a financial crisis is the norm for most areas of global markets. Thus the fact returns from global equities over the past decade have been down to revaluations or multiple expansion, particularly in the period from 2011 until 2016, has been of little surprise. However, this all changed last year, when an improving picture of global corporate earnings growth began to emerge in areas including emerging markets, technology, and global financials. Earnings growth broadly kept up with the rise in markets overall as well. Boosted by a potent mix of strong global growth, subdued inflation and interest rates, as well as robust profits, the outlook for global equities finally appears to be driven by genuine corporate earnings growth. Yet in today’s market environment, it is important to delve deeper and properly analyse global stocks to ensure we haven’t seen the best of a specific theme, sector or region already. After all, it is easy to be blinded by the shorter-term effects of market momentum, which reveal little about the more persistent trends that help global stocks outperform over the long-term. Global equities may be at a turning point in terms of earnings support, yet deciphering the clear winners in today’s challenging and diverse market requires careful analysis to ensure investors are rewarded.
My policy is to be as bottom-up driven and valuation disciplined as I possibly can
As a fund manager, I am very sensitive to high valuations where I believe incrementally bad news could cause sharp drops in valuations
*Source: Morningstar Direct. Basis: bid-bid, net income reinvested at UK basic rate of tax in UK sterling. Fund AUM source: Fidelity International as at 31 March 2018.
Jeremy Podger, portfolio manager of the Fidelity Global Special Situations Fund explains how 30 years of managing global equities is helping him to decipher the key underlying trends that are shaping markets today
“Broadly speaking, I can invest in anything. So the question is how I address that. The key for me, certainly in big themes and sectors like tech, is to stay relevant. As a fund manager, I am very sensitive to high valuations where I believe incrementally bad news could cause sharp drops in valuations. “I tend to shy away from those companies and have always struggled to justify or understand how to value companies like Amazon, for example, where the underlying company is effectively buying market share through an economic proposition that most competitors just wouldn’t accept.” Instead, Podger looks at stocks that directly play into a new area within themes - such as semi-conductors within the technology sector - and move away from stocks that might have reached the end of its product cycle. Podger is also “obsessed” with risk, he says. By focusing on managing risk he has been able to curb losses during key volatile periods over the past three decades, as there is always a level of diversification within the portfolio. “Risk control for me is about helping investors to understand that the fund does have some very distinct propositions in terms of the types of investments I select, but these elements work together and add up to a stylistically balanced and flexible portfolio. “Investors in this fund are not looking for income or a massive growth bias. I manage my risk against the MSCI World index and normally, at least half of the overall risk in the portfolio is simply stock-specific, rather than being systematically derived from a specific investment style or sector.”
Podger refers to the time around the tech bubble as “fascinating”, predominantly because few people knew what was happening. By 1999, the market had become massively polarised, and it was becoming obvious it was in ‘bubble’ territory when in the first half of 2000 the NASDAQ peaked. History doesn’t repeat, but it can rhyme and there are signs that euphoria has set in again among parts of the tech sector. “Today you have completely new areas of technology where the apparent normal rules of economics are breaking down in terms of diminishing returns to the scale of the business. Is there a bubble brewing there? I don’t know. I do know that if you take a long-term view, there is every chance the cast of characters will change again over the next 10 years - just as it has over the past decade. And this could happen in any number of global markets. But none of these moves will be signposted, so we have to stay ahead of the curve and analyse individual investments as much as possible.” Podger admits this is tough, particularly when managing a global portfolio as there are no rules dictating what you can or cannot invest in.
While he is always cognisant of the wider trends that come in and out of fashion, his investment philosophy analyses the underlying story that drives and determines a company’s fundamental outlook. This strategy has assisted him in successfully navigating a series of bubbles over the past 30 years, from the Asian currency crisis in the mid-1990s, to the tech bubble crash in the early 2000s. On a long-term basis, Podger’s track record as a global equities fund manager has seen him outperform indices through a number of market cycles. From 1 April 1996 until 28 February 2018 Podger has delivered annualised returns of 10.2% versus an IA Sector Average of 6.3%, and the MSCI AC World index’s 7.6%.* “My policy is to be as bottom-up driven and valuation disciplined as I possibly can. This is an important part of the strategy because big trends rarely appear from nowhere; the underlying story is normally associated with a specific part of the world, or a part of the market where the potential for growth has changed dramatically.” Podger refers to the technology bubble of the early 2000s by way of an example. At the time, companies themselves were much more nascent and underdeveloped than the technology companies of today, he notes, with an earnings base far removed from what is seen in the sector today." Investors paid option values but the combined value of them far exceeded the token justifiable value, which was purely based on the broad market opportunity. “At that time it was really about trying to spot there was a trend - which clearly there was in tech. But as an investor there is a difference between understanding that technology is going to play an important part in the future, and identifying those companies with real earnings and justifiable valuations. It was about looking beyond the trend [and at the companies themselves]. Take Cisco, a listed company still operating today. It hasn’t been able to achieve anywhere near the same share price that it did in 2000.”
Jeremy Podger, portfolio manager of the Fidelity Global Special Situations Fund
‘Big global trends rarely appear from nowhere’
Almost a decade into one of the longest bull markets in financial history, it seems prudent to reassess the future prospects for markets and how investors should position themselves when volatility inevitably returns. We have seen a long period post the financial crisis where the US, and particularly the tech sector, has been the principal driver of global equities. However, market movements and events related to some of these names over the opening months of the year have served a timely reminder that leadership can change and nothing lasts forever. In this environment, the benefits of diversification - rather than focused exposure to a specific theme, sector or region - through a carefully managed global equity portfolio could help investors navigate a more challenging and changeable backdrop from here. “The benefit of global equities is investors have a live and ongoing reallocation process within their portfolio at all times, alongside ongoing and careful management of risk,” explains Jeremy Podger, portfolio manager of the £2.4bn Fidelity Global Special Situations Fund. “Whilst the way I manage funds means you won’t expect years of double-digit outperformance versus the benchmark on the way up, equally the full effects of market busts are not felt either and that is an important consideration today.” For any global equity investor, correctly calling the markets or a specific theme is a binary game, and by his own admission Podger has never been the type of global equity manager to “identify a theme, invest in it and then nicely time the top and bottom”. Yet too often investors do play themes directly in global equities, attracting massive inflows which can unintentionally drive up the market: “Then it often goes horribly wrong and investors have to unwind their investments in said theme,” explains Podger. “This is when investors find there is nowhere else to go as they only had one story (or theme) to tell.” While this narrative is a familiar occurrence for some, Podger’s experience of managing global equities since 1990 has been significantly different. Rather than invest in specific global equity trends or themes, the philosophy behind Podger’s Global Special Situations Fund focuses more on three types of ‘investments’ rather than companies specifically. In this regard, Podger looks to combine corporate change – typically related to M&A or restructurings - with exceptional value opportunities, as well as unique businesses that enjoy a strong competitive position and dominate their respective niche.
Past performance is not a reliable indicator of future returns. Source: Morningstar, 31 March 2018. Basis: bid-bid, income reinvested in GBP. © 2018 Morningstar, Inc. All rights reserved. The fund’s primary share class according to the IA is shown. PM tenure since 1 March 2012. Holdings can vary from those in the index quoted. For this reason the comparison index is used for reference only.
Japan: Hot TOPIX
Across the Japanese equity market as a whole, companies have near zero debt
Japanese equity valuations remain attractively valued relative to the rest of the world. As shareholder friendly reform gathers pace, where are the opportunities for active managers in Japan over 2018?
While he is always cognisant of the wider trends that come in and out of fashion, his investment philosophy analyses the underlying story that drives and determines a company’s fundamental outlook. This strategy has assisted him in successfully navigating a series of bubbles over the past 30 years, from the Asian currency crisis in the mid-1990s, to the tech bubble crash in the early 2000s. On a long-term basis, Podger’s track record as a global equities fund manager has seen him outperform indices through a number of market cycles. From 1 April 1996 until 28 February 2018 Podger has delivered annualised returns of 10.2% versus an IA Sector Average of 6.3%, and the MSCI AC World index’s 7.6%.* “My policy is to be as bottom-up driven and valuation disciplined as I possibly can. This is an important part of the strategy because big trends rarely appear from nowhere; the underlying story is normally associated with a specific part of the world, or a part of the market where the potential for growth has changed dramatically.” Podger refers to the technology bubble of the early 2000s by way of an example. At the time, companies themselves were much more nascent and underdeveloped than the technology companies of today, he notes, with an earnings base far removed from what is seen in the sector today.“ Investors paid option values but the combined value of them far exceeded the token justifiable value, which was purely based on the broad market opportunity. “At that time it was really about trying to spot there was a trend - which clearly there was in tech. But as an investor there is a difference between understanding that technology is going to play an important part in the future, and identifying those companies with real earnings and justifiable valuations. It was about looking beyond the trend [and at the companies themselves]. Take Cisco, a listed company still operating today. It hasn’t been able to achieve anywhere near the same share price that it did in 2000.”
Japan has proven to be an interesting hunting ground for investment opportunities in the Fidelity Global Special Situations Fund. Contrary to popular perceptions, in like-for-like currency terms, Japanese equities have outpaced the MSCI AC World index over the last five years. However, there are reasons to expect the market to outperform from here. Currently, despite businesses witnessing new highs in terms of corporate profitability, the market in Japan remains well below levels seen in the late 1980s. In fact, a meaningful part of the market trades at a market value below book value and, across the market as a whole, companies have near zero debt - this is very unusual in an international context. At the same time, valuations versus the rest of the world are near record lows, while corporate reform and increased shareholder focus continue to move in the right direction. Not only are businesses more focused on return on equity, there is a distinct change in how companies are approaching governance, with board members now needing to justify cross shareholding patterns and cash holdings on the balance sheet. Despite favourable valuations in Japan, foreign investor flows have been highly variable and these are often a key determinant of the market’s performance against the rest of the world. In early 2018 they turned negative again, partly in response to a stronger Yen and partly due to rising geopolitical concerns and US protectionist measures. None of these factors is helpful for the market in general, which is seen as highly sensitive to global trade flows, nor specifically to Japanese exporters. However, Japan’s recent solid economic growth (tracking towards 2% in real terms in 2017) is not just the result of trade-related demand but reflects a real (some would say surprising) improvement in domestic demand conditions. In this context, we will be following developments around expected Japanese tax reform very closely in the coming period. Whilst the market as a whole appears cheaply rated against other developed regions, there has been a notable polarisation in performance over the past year in favour of growth stocks. A lot of money has flowed into thematic funds focused on automation and robotics, and this has coincided with some recent strong customer orders for the Japanese companies in this area, so their share price performance has been spectacular. In addition, the market has become much more optimistic about certain consumer companies that have a winning formula in Japan and are now looking to capture a share of the Chinese market. At this stage, the enthusiasm for some of these growth companies appears to have gone too far.
Source: Fidelity International, Bloomberg, As on 31 December 2017. MSCI Indices have been used for regional comparison.
Source for both charts: Fidelity International, Bloomberg, As on 31 December 2017. MSCI Indices have been used for regional comparison. *Past performance is not a reliable indicator of future returns. Source: Morningstar as at 31.03.2018, bid-bid, net income reinvested. © 2018 Morningstar, Inc. All rights reserved.
As an aside, technology far outstripped all other sectors in performance terms last year. This largely reflects some very powerful earnings growth so that earnings/cashflow-based valuations (relative to the broader market) are generally below long-term averages. This does not mean, however, that many of the better performing names may not correct when the recent rapid growth inevitably slows down. There have been signs of this among some of the high profile mega-caps over the opening months of 2018. In conclusion, and in my opinion, (subject as ever to unforeseen events), equities should remain well supported. The focus, as always, remains on finding the best stock opportunities for our investors globally.
Tech boost
Meanwhile looking at market levels, it is difficult to deny that low bond yields have had some influence in dragging up equity market valuations in recent years. While investor sentiment in the US among private investors has been positive recently (though less so amongst professional investors), data shows actual fund flows in the US have been more directed to bonds than equities since the financial crisis. It has been a similar picture for other regions, suggesting it is at least possible that with fixed income yield spreads now very compressed, investors could deploy more risk capital into equities in general in the coming year. Thus, at this stage I am inclined to be generally positively disposed towards Europe, Japan and other Asian markets. I am a little more cautious on the US, despite the recent boost from tax reform.
The valuation backdrop
Investor sentiment
At this stage, my working assumption is that the current benign economic backdrop is most likely to lead to investors to focus more outside the US now that earnings growth has reappeared and valuations are relatively more favourable (see chart). While the central case may be the rest of the world now outpaces the US which is more expensive (even after tax reform), more mature in terms of the profit cycle, and companies have generally taken on more debt (unlike elsewhere in the world), if however, there is some kind of crisis, the US would be expected to exhibit more defensive qualities as it has done in the past. A sharp sell-off could be caused by any of a number of possible geopolitical events - one example might be an oil price related inflationary shock. In the absence of such an unforeseeable shock, it is reasonable to expect the US market to be able to hold its current valuation levels until monetary conditions are significantly tightened and earnings growth turns negative. This will happen at some point but appears less likely on a 12-month view.
In 2017, equity markets produced very strong returns with the MSCI All Country World index up 24.0% (total returns) in US dollar terms. While the US lagged a little, continental European markets were helped by a strong euro; and emerging markets were up 37.3% (though virtually unchanged on their level seven years ago). The US’s dominance (in performance terms) since the financial crises has partly been due to a currency effect, but also reflects the fact corporate profit growth has been relatively strong in the US and relatively weak elsewhere (see chart, right). Overall, as the world saw no earnings growth (in US dollar terms) between 2013 and 2017 - it was thus a ‘revaluation’ phase for markets. In 2017, however, the rate of global earnings growth was broadly similar to the rise in markets - so we could say that we appear to be in a new ‘earnings driven’ phase of market growth. At the end of December 2017, the consensus view expected US earnings to grow a further 12.6% in 2018, with the passage of the tax reform bill now propelling this number into the high teens (in percentage terms). There may also be scope to surprise positively outside the US as well. So this should be supportive of markets this year, though one should note that growth in 2018 (and 2019) is unlikely to be up to last year’s strong showing. Against this is the expectation of a tightening of liquidity conditions with further rate rises in the US, and some ‘tapering’ of quantitative easing in Europe. Meanwhile, economic indicators are generally very positive (though admittedly one could worry they cannot get much better). What do these potentially opposing forces add up to? More market volatility than the unnatural calm that prevailed in 2017, that is certain!
Following strong equity gains and rising valuations in recent years, Jeremy Podger questions whether global markets might be recalibrating for a new era of earnings growth
Are equities entering a new phase of earnings support?
Investing in quality high return businesses is nowhere near as rewarding as finding companies that are improving their returns
We prefer to deploy many ideas rather than one big one in the fund
*Past performance is not a reliable indicator of future returns. Chart Source: Fidelity International, Thomson Reuters Datastream, 31 March 2018. Indices rebased to 100 as at 1 January 1995. Table source: MSCI as at 31 March 2018.
Past performance is not a reliable indicator of future returns. Source: MSCI. Performance data from 31 Dec 1998 to 30 March 2018. The MSCI ACWI Quality Index is comprised of companies within the broad MSCI ACWI Index with high quality scores based on three main fundamental variables: high return on equity (ROE), stable year over-year earnings growth and low financial leverage.
In the Fidelity Global Special Situations fund, we prefer to deploy many ideas rather than one big one. We have a consistent selection process in three categories of investment types which include both value and growth situations. Which themes come out will largely be a function of which stocks are judged to be most attractive, particularly from the point of view of valuation and long-term profit potential. Over the past six years, this has led to some great successes in semiconductor companies, in healthcare services, in recovery stocks in Japan and in financial stocks in emerging markets, to name just a few areas. The stock selection discipline is designed both to unearth areas of opportunity that may develop into sustained long-term winners and, we hope, to move out of them when they have run their course.
In past economic cycles, demand strength led to supply shortages which led in turn to better returns on capital-heavy industries. Disruption and the changed nature of value-chains across all industries mean that it is probably wrong to wait for a rising tide to lift all boats but rather, to mix metaphors, to fear that the devil will take the hindmost. In other words, beware of ‘value traps’.As is normal in long trends such as this, we would have to say that value will probably recover after most people have finally pronounced the last rites. In some respects it feels as if we are close to this point - but it is not worth betting the house on it. So how do investors choose the next big themes for the markets from here? When there is a change in market leadership, you have to look at those managers who have been successful in the past and ask whether that manager can adapt to the new changes or whether it is time to change the manager.
This brings us to the large and thorny issue of ‘value’ vs ‘growth’. Academics have trawled the data from the past century or more to demonstrate that value has outperformed growth over the long run. But it has been in a prolonged and unprecedented bear phase since the financial crisis 10 years ago. The cycles of growth and value performance have in the past largely followed interest rate cycles - and we haven’t really seen an interest rate cycle in the past decade. But, as for quality shares, growth has been helped by declining bond yields (effectively making future earnings more important in present value terms). What seems certain is a general rise in inflation and rising bond yields should be more supportive of value stocks. We saw this in the brief value rebound in the second half of 2016 - but all those relative gains have been given back. What is going on here? A lot has to do with the extraordinary pace of disruption caused by technology innovation in all sectors of the economy. It is better to be smart than to throw tangible assets at problems these days. And in any case, a huge amount of the investment in really capital-intensive manufacturing has been in Asia where competition remains fierce.
Theme three: Growth (vs Value)
With last year’s amazing performance of technology stocks, people have rightly asked whether this is an overvalued area. Here the answer is not straightforward. Technology cannot be narrowly defined, and now permeates every industrial sector to a greater or lesser extent. It is rare to see a single sector stand out to the extent that technology did last year. However, aggregate technology profits were also much stronger than for the market as a whole. Thus the sector’s relative valuation based on forward earnings estimates barely shifted. If we want to ask whether this is an overvalued area. We need to find other angles to look at because - in sharp contrast to the state of affairs in the tech bubble of 1999/2000 - earnings-based valuations are not polarised compared to other sectors. One of the key problems within technology is the concentration of market value in the biggest beasts within the sector (Facebook; Amazon; Netflix and Google (FANGs) and Baidu, Alibaba and Tencent (BAT). These companies all saw strong earnings growth and share price rises last year and thereby became far more significant weights within broad market indices. For these stocks it is probably best to test reasonableness on a case by case basis. For example, the market value of Alphabet (Google) and Facebook, both of which derive their revenue from and dominate digital advertising, is around US$1,200bn - which compares to an estimated total global advertising spend of around US$500bn. Amazon has a market value of around US$700bn. Walmart has far bigger sales and historically better margins but you pay around US$3.9 for a dollar of sales at Amazon and a little over 50 cents at Walmart. We know it is fair to pay for growth - but we have to keep asking how much is fair to pay for it - can these companies justify their value in terms of the profits they will eventually earn when they are fully mature? It is worth observing that high growth companies often see sharp de-rating in their shares when their growth rate slows, even if they are still growing faster than the broad average.
Theme two: Technology
We have started to see market participants question the idea that it must somehow be obviously true that a good active manager must necessarily invest in ‘quality’, as defined by return on capital or margins in the business. Why did ‘quality’ do so well in recent years? Partly because of investor uncertainty about the global economy – when we worry about demand weakness in the economy we would rather have companies that have high levels of profitability and relatively low sensitivity of revenues to the economic cycle. But ‘quality’ was also helped by the long running decline in bond yields which, for now at least, appears to have stopped. If we think about the types of company that could epitomise ‘quality’, we naturally converge on consumer staples or fast-moving-consumer-goods companies. Most of these have enjoyed nearly 20 years of expanding profit margins and have traded at progressively higher multiples of earnings. Since 1999 Nestle, for example, has roughly doubled net margins. The most extreme examples would also include tobacco companies: British American Tobacco (BAT) has given a 26-fold total return (before tax in sterling terms) since the start of 2000. It started from a very low valuation and the company saw net margins expand from 5% to 26%. However, the stock has fallen by a quarter in the past 12 months at a time when many other staples companies have also struggled. It seems that for many of these companies, the days of strong revenue growth and margin expansion may be behind them. The clear message is that investing in good quality (high return) businesses is nowhere near as rewarding as finding companies that are improving their returns. In a fascinating study a few years ago, Credit Suisse analysed global data from 2003 to 2012 looking at the best and worst performing companies by CFROI (cashflow return on invested capital). This found that over that relatively turbulent period the top 20% of companies by CFROI returns at the start of the period produced lower returns than the middle and lower slices. Quite surprisingly, companies that started in the top fifth by CFROI and ended in the top fifth also produced a slightly lower return than middle profitability companies that ended in the middle. The notion being that sometimes investors pay too much for quality.
Post-crisis themes
Theme one: Quality
There are many good examples of historic mega-trends that have propelled the careers of fund managers. Think of the heroes that focused on emerging markets between the end of 2001 and 2010. The MSCI Emerging Markets index returned over 200% over those nine years against only a small rise in developed markets - but over the next five years it fell by 30% as the developed world steadily appreciated. Or, in the middle of that period, the fad for basic materials that fuelled the fantastic growth of China causing, for example, Rio Tinto (thanks to its leading position in iron ore) to quintuple before giving it all back in the second half of 2008. Therefore, we need to to ask about recent areas of leadership – have we seen the best of these trends? The three clearest trends worth talking about (and they are to some extent overlapping) are quality, technology and growth. There are some clear signs that these trends are changing somewhat and may even reverse over the medium term.
Stockmarkets are in a state of constant flux but there are currents that can persist over long periods. Think of the fund manager as navigating a river which is constantly twisting and turning, sometimes calm and sometimes perilously turbulent. At times, one can be positioned in the sweet spot, finding oneself speeding ahead for a while but then, as the river changes course, left behind in an eddying backwater. We see this in the measurement of ‘momentum’ effects in markets. As long as ‘momentum’ is working, stocks that have performed well in earlier periods have a tendency to outperform subsequently. This appears to have been the case around the world for a very long time (with the notable exception of Japan). However, the measurement of the momentum effect really only captures shorter-term effects. It says little about persistent trends since today’s momentum stocks may be quite different from those of a year ago. So trying to follow a purely momentum-driven strategy would involve a frantic level of portfolio turnover. Occasionally there is a sharp anti-momentum move which will catch out the trader on the way in and the way out and cause huge short-term losses. It is far better then to try to tap into more persistent effects – long-term momentum, if you like. Fortunately, at least with the great benefit of hindsight, trends often mirror fundamental earnings power (relative to market averages) and are initially supported – and eventually checked by – relative valuations. Such trends seldom move in a straight line but a manager that sticks with a multi-year theme through thick and thin can appear to be inspired.
Fidelity portfolio manager Jeremy Podger reviews three key areas that have driven global equities in recent times. He assesses whether these trends may now have run their course and how he is positioning for what happens next.
Positioning for a change in leadership
Overview: Fidelity Global Special Situations Fund
The Fidelity Global Special Situations Fund is an unconstrained portfolio that combines growth and value characteristics and provides the potential to deliver returns across the cycle.
Ratings are as at 31 March 2018. Copyright - © 2018 Morningstar, Inc. All Rights Reserved. Morningstar Rating™ as of 31 March 2018, in the Global Large-Cap Blend Equity Morningstar Category™.
Source: Fidelity International, 31 December 2017. Data is unaudited. 1 Portfolio Managers include equity, fixed income, real estate, multi asset and derivatives teams. 2 Fixed Income Research includes quantitative/credit analysts. 3 Includes 1 economist. 4 Other Research includes derivatives and quantitative experts. 5 Includes Equity Research Support Resources
• These companies offer the potential for a fundamental shift in value over a 12-18 month time horizon. • The potential catalyst is often linked to corporate change and the potential for M&A and spin-off activity. • Typically represents c.25% (+/- 10%) of the overall portfolio.
Corporate Change
• These companies typically have a dominant position in their industry and, as a result, have a sustainable competitive advantage which allows them to grind out good returns over the longer term. • The investment potential comes primarily from the growth of the underlying business, rather than multiple expansion. • Typically represents c.25% (+/- 10%) of the overall portfolio.
Unique Businesses
• These companies offer the potential to deliver more than 50% upside over a three year period and typically account for the core of the portfolio. • They offer demonstrable value in terms of their share price, with readily identifiable catalysts which provide potential for the company to deliver expectation-beating earnings growth and a significant valuation re-rating. • Typically represents c.50% (+/- 10%) of the overall portfolio.
Exceptional Value
The three paradigms of global special situations investing
In running the fund, portfolio manager Jeremy Podger aims to identify 70 -110 stocks with the potential to deliver strong performance based either on their status as unique businesses, undergoing corporate change or offering exceptional value.This flexible approach provides the fund with the potential to deliver attractive returns without taking on excessive levels of risk. It also helps limit the portfolio’s overall sensitivity to the economic cycle and allows for the possibility of outperformance across a range of market conditions. Podger is an FE Alpha Manager and has demonstrated a strong track record over a long investment career. In recognition of this, he was also recently named as Fund Manager of the Year 2017 – Global Equities by Morningstar.
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