HEAD-TO-HEAD: Fidelity versus Stewart

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Investment approach

Both funds have disciplined, effective investment approaches, but there are significant differences in their strategies, according to Daniels.

Nick Price and his team at Fidelity primarily look for quality growth firms that exhibit strong and sustainable returns on equity, good balance sheets, shareholder-friendly management teams, and reasonable valuations

“This strategy attempts to provide exposure to Fidelity’s best global emerging markets equity ideas,” said Daniels.

Analysts’ recommendations are channelled to three regional portfolio managers who each build portfolios of approximately 50 stocks. From there, Price conducts further analysis on prospective holdings to build a portfolio of 60 to 70 names.

“Target prices are set for each stock, considering the business prospects, its historical valuation range, and the current business environment,” said Daniels.

Price is involved across the research levels, challenging assumptions in analyst models and amending price targets to reflect personal views.

“The end portfolio has few formal constraints, but sector weightings tend to stay within 15 percentage points of the MSCI Emerging Markets Index, and reflecting his conviction-based approach the active share has trended above 80% during Price’s tenure,” said Daniels.

The Stewart team led by Ashish Swarup seeks quality stocks that are able to deliver sustainable and predictable growth through pricing power, franchise strength, and limited regulatory oversight.

“Management stewardship is paramount,” said Daniels.

“Swarup requires management teams that act with integrity, are long-term-oriented, and demonstrate an ability to manage risk effectively.”

The investment universe is shaped primarily through frequent management meetings, with the team considering how company executives have conducted themselves throughout their careers.

Ultimately, the team forms a list of about 350 firms from which the 40-60 stock portfolio is built, often using compelling valuations as the catalyst to initiate positions.

The strategy is benchmark-agnostic, so country and sector exposures differ substantially from the MSCI Emerging Markets Index. Although the “leaders” mandate means that holdings will have market-capitalisations above $1bn, the portfolio has consistently had a smaller-cap tilt compared with the index, according to Daniels.

“Overall, the approach is well-codified, robust, and differentiated. Indeed, it ranks as one of the best in the industry,” he concluded.

Source: FE Analytics, Morningstar (Data in US dollars, 12 September 2019) 

Market Exposure:

Sector Weightings

Source: Fund factsheets, 30 August 2019

Country Weightings

Source: Fund factsheets, 30 August 2019

Top 5 holdings

Source: Fund factsheets, 31 August 2019

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