Fidelity's global focus fund is to target experienced investors who want exposure to global stockpicking opportunities
Brenda Reed began investing Fidelity's latest specialist global equity fund from 14 January, with seed capital of £5m.
Global Focus is designed for experienced investors who want concentrated exposure to a portfolio of stocks picked from around the world and will differ from other international funds by not being bound by geographic or regional constraints.
Reed, formerly head of research for UK and Europe, said her sector-based approach to global equity fund management is a result of the growing trend towards globalisation among companies, industries and investors, as well as a logical extension of Fidelity's increasingly international approach.
Following her appointment to run the offshore Global Focus fund, Reed's co-director of research Geraldine Stewart has taken over her old role.
Can you describe your investment style?
It tends to be that overused term, growth at a reasonable price. The companies I am looking for tend to have good management and returns, some kind of pricing power through being a low-cost producer, for example, having patents, having a new product cycle or something else that is competitive and quite long-term in nature.
Those companies do not come cheap, so we are looking for something that is undervalued versus its competitors or its global peers and that we are willing to hang onto for long enough for that to work out.
Why launch this product now?
We haven't had a fund like this in the past and I think the evolution of what we have done in the research department in the past five years is really important.
We have four different regional analyst teams all structured the same way from a sectoral standpoint. Over the past few years, we also stitched together all the sector specialisations, such as financials, by having them work on global sector funds so they were doing more cross-valuation work and competitive analysis from a global standpoint. Now we have put global sector analysts in to take that process to a new level.
The fund plays to all our advantages in that we know our companies well and we talk together around the world. I don't think we could have done this five years ago.
The fund is to have a portfolio of around 100 stocks ' that doesn't sound very focused.
It depends how you look at it. In the UK, focused funds tend to have around 60 stocks but you must remember my benchmark, the MSCI World Index, has about 1,500 companies.
There are something like 25,000 companies in which I could invest in four major regions, US, Japan, Asia and Europe, and six broad industry groups, so it really is focused.
Are there any limits on your investable universe?
It is an equity portfolio, so I will not make bond bets, and we will not use any derivatives. From an equity standpoint, if it is tradeable and I think it is a strong story, the fund should be able to take advantage of any good idea we can find around the world.
Can you describe the sector approach to managing the fund?
It is based on Fidelity's traditional strength, which is individual fundamental analysis, but a number of our other global products approach investment from a sub-portfolio regional standpoint.
If I take a view on the semiconductor industry, I am going to own the best semiconductor stock wherever it is found in the world. I will compare companies on a global basis if that is the way they are valued and compete.
Do you have a growth or value bias?
I am looking for relative value overall, so if I can buy a good growth company at a cheap price, that is fantastic. Some of the traditional value stocks now look quite expensive compared to where they have traded historically.
Will you be the only staff member dedicated to this particular fund?
All the analysts around the world hopefully can and will generate ideas. My primary analysts will be our six global sector analysts and then our sector leaders in each of the regional offices. There is a huge team of more than 200 analysts, but I will interact mostly with about 25 of them.
Will most of the stocks you invest in be stocks held by other Fidelity funds?
If I manage to find something that nobody else owns, it would behove me to get it into all of our clients' funds so we all can make money from it. The aim is to make the client money, so I will not be keeping my ideas to myself.
We do not have a list of stocks that are approved for purchase ' I can choose to agree or disagree with the analyst and take a position or not.
Do you favour any particular market cap?
This will be a large-to-mid-cap fund. I would most likely be somewhat underweight on the super-large caps and somewhat overweight the mid caps. I am unlikely to go down to small cap stocks.
They are so small and the fund isn't going to have 400 to 500 positions of £10m apiece. It's not my specialty and not what I'll be doing.
Any areas to avoid?
If I can find a great company in the emerging markets area with good management and a good competitive advantage that is priced right, I would buy it, but I would not expect that to be a large portion of the fund.
What areas of the market are you particularly interested in at the moment?
We have been doing a lot of work on the medical technology area. There are many reasons why that is an attractive area: the ageing population or quality of life issues such as knee replacements.
The companies have good pricing power and it is a high return business. Generally, returns on equity are greater than 20% per year. They also have less pressure from the Food and Drug Administration than a straight pharmaceutical company. All this means you can grow your sales and earnings at double-digits. All the European companies are currently trading at a discount of about 35% versus their US peers.
If you look at where they derive their revenues and incomes, they look a lot like the US companies. So you're getting something relatively cheap compared to the market historically, as well as against peers overseas.
The fund is being marketed as suitable for experienced investors seeking a higher-risk vehicle. How do you quantify the risks?
The style of the fund plays to Fidelity's strengths, in that we know our companies well, we visit them and have strong relationships. With 100 to 150 stocks, I think we can keep track of them quite well.
The second overlay is seeing what your sector weights look like versus the index. For example, in most markets and the MSCI World Index, financials are a very large proportion.
If you do not own a single financial stock, that says either something very bad about the world or that you need to rethink your position.
The final overlay will be a geographic weighting, and I expect to devote the least amount of time to that. I just want to find the best companies and let the regional weightings take care of themselves.
FUND MANAGER: Brenda Reed
Joined Fidelity 10 years ago in the US as an equities analyst before managing a number of sector funds and becoming an assistant portfolio manager.
Moved to Japan with Fidelity in 1996 to work as an analyst and equity portfolio manager before becoming director of research for Japan.
Transferred to London in 2000 to become head of research for UK and Europe. Worked on setting up global sector teams and global sector funds.
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