Fidelity's launch of a range of four global sector funds out of Luxembourg can arguably be seen as a...
Fidelity's launch of a range of four global sector funds out of Luxembourg can arguably be seen as another nail in the coffin of geographical funds. Fidelity already runs $49bn in 48 sector funds in the US, and believes it can replicate this success in Europe. The Fidelity Funds series will see the introduction of a healthcare fund, an industrial fund, a financial services fund and a consumer industries fund on top of the existing telecoms and technology funds.
The argument goes that with the continuing internationalisation of markets, geography is becoming less relevant to investment strategy with global forces having the most substantial effect on company performance. Global companies now dominate the market and investors are joining in this movement, buying stock from anywhere in the world, valuing companies on a global basis. Many companies similarly are adopting global standards.
In the light of this, fund managers are restructuring their research and analysis to cope with the importance of analysing companies and industries on a cross-border basis.
Of course, Fidelity is not the first fund manager to do this. Managers such as Sarasin, Lombard Odier and Newton have been successful with this investment approach for some time.
While on the face of it, the growth in sector and style fund offerings is good news for investors in the form of more choice. It signals an interesting departure into how fund managers will operate in the future. In Fidelity's case the product suits the bottom-up stock-picking style while leaving the sector decisions to the investor.
This departure will not suit all groups, the pure top-down managers are likely to suffer unless they get in the expertise to shore up their stock-picking capabilities. But neither will the approach suit all investors. Taking sector bets still requires translation into country positions. Basically, by attributing more assets to those countries with high weightings in sectors you think are going to perform and vice versa.
Using this model it then becomes feasible to take a view on a market relative to other markets elsewhere in the world without depending solely on a straightforward country analysis.
Where it gets confusing is when it comes to informing investors or indeed explaining the concept of sector funds, as most reports and research are still heavily geared to single country analysis. Daily market coverage is also geared geographically, as are most indices.
This puts the investor in the unenviable position of having to plough through all of this to pick out the nuggets of information needed to make a sector decision.
The introduction of indices based on sectors is helping the situation but it is still not enough. Whether or not geographical funds have a future at all will depend on how far the industry wishes to push the sector story. But investors need more help to guide them through the sector maze.
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