HEAD-TO-HEAD: Fidelity versus Loomis Sayles

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Investment approach

“The Fidelity fund is a traditional US value offering,” according to Tsymbaluk.

“The focus is on companies that have typically gone through a period of underperformance, where the market is undervaluing their recovery potential and there is strong relative upside/downside potential,” she said.

“The investment approach leads to a portfolio with a strong value tilt and mid-cap bias,” she added.

The portfolio tends to be concentrated, consisting of 35-50 names, with limited exposure to utilities and Reits and overweightings in technology, financials, and healthcare, compared with the Russell 1000 Value Index.

Within technology, the managers prefer mature companies such as Oracle, Cisco and Check Point which they see as having strong competitive positions and balance sheets, according to Tsymbaluk.

Among financials, they own diversified financial services group Morgan Stanley and counter-cyclical investment businesses Berkshire Hathaway and Fairfax Financial. The managers also like Wells Fargo for its restructuring potential and for its significant discount to book value, Tsymbaluk noted.

The Loomis Sayles strategy is “quality growth”, with the manager seeking three major characteristics in companies: quality, growth, and valuation, according to Tsymbaluk.

A proprietary seven-step framework is the cornerstone of the process.

Aziz Hamzaogullar and his team conduct: competitive advantage assessment, industry analysis, financial analysis, and management ability for the quality pillar. Within growth, the emphasis is on the sources and sustainability of profits. In valuation, the team establishes intrinsic value and do expectation analysis.

“Overall, the team is trying to identify firms that have difficult-to-replicate business models and competitive advantages, such as a network effect, low-cost advantage, or a strong brand,” said Tsymbaluk.

The result is a focused portfolio of 30-40 stocks, which does not change much from year to year, she said.

Individual stakes can be sizable, but are limited to 8% of the portfolio. A long investment horizon is reflected in the fund’s low turnover of less than 20%. It tends to have a high active share, and sector weightings can deviate significantly from the Russell 1000 Growth Index’s.

“The focus on quality and growth has been consistent and the strategy’s return-on-equity has been above that of the US large-growth peers,” said Tsymbaluk.

The portfolio has also had one of the largest stakes in wide-moat stocks in the category (typically 75%-80% of assets).

“Hamzaogullari prioritises diversification of the portfolio’s underlying business drivers: online advertising, enterprise IT spending, and e-commerce are among the leading forces,” said Tsymbaluk.

Fund characteristics

Sector allocation:

Source: Fund factsheets, 31 May 2021

Top 10 holdings:

Source: Fund factsheets, FE Fundinfo, 31 May 2021

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