Investment process

At Fidelity, we believe that a well-defined and methodical investment process is crucial to achieving strong and rewarding portfolio outcomes.
The following information provides a general overview of the Fidelity investment process.

1. Idea generation
Our global network of over 900* investment professionals sharing information in real time, constantly uncover potential investment opportunities. No stone is left unturned as we seek out undervalued companies with the potential to deliver sustained growth.

2. Research and connection
Fidelity takes individual company research and analysis to unprecedented levels.
In addition to face-to-face meetings with company executives, we visit middle managers, factory floors, shopfronts and satellite offices. We even scrutinise the company’s customers, suppliers, distributors and competitors.
It’s this process of rigorous examination that gives us a three-dimensional view of the company – a view that allows us to accurately assess their performance and potential, without relying solely on bought-in research.

3. Stock ratings
Once a thorough review of the company has taken place, Fidelity’s analysts assign a stock rating between one and five. One represents a strong buy, whereas five represents a strong sell.

4. Stock selection
After assessing the investment thesis and financial models upon which the stock rating was based, Fidelity’s portfolio managers choose the appropriate number of stocks for their fund.
There is generally a close correlation between analysts’ stock ratings and the holdings in a fund, as portfolio managers are continually engaged in open dialogue with the analysts.
Individual ratings are based on the following factors:

• A stock’s research rating
• A bias towards stocks that are likely to generate the highest total returns for shareholders, taking into account the risk/reward profile
• A portfolio manager’s conviction, especially if this opinion differs from the consensus
• Industry, regional or country diversification requirements
• Liquidity considerations

When do we buy?

Fidelity portfolio managers will buy a stock they believe will outperform expectations based on one or more of the following criteria:

• Positive growth
• Earnings surprises
• Cashflow and/or dividends
• Competitive advantage
• Earnings recovery
• Current value
• Company re-structuring
• Hidden assets

When do we sell?

Fidelity portfolio managers will sell a stock when:

• The potential is reflected in the share price i.e. the valuation gap has closed and consensus earnings have been upgraded
• There is better potential elsewhere e.g. companies that offer a more positive 12-month return outlook or present a lower risk profile
• Unforseen factors arise that lead to slower earnings growth
• The company changes strategic direction

5. Monitoring
To ensure the stock performs in line with the fund’s objectives, we try to make contact with the company at least every 90 days to monitor its operations and performance.
What’s more, each Fidelity portfolio is constantly monitored to ensure it remains within our risk parameters and guidelines.
Monitoring takes place via the following methods:

• Portfolio managers can view fund details in real time via our web-based portfolio management system.
• Portfolio managers and analysts meet regularly to review the latest research and information in order to minimise stock-specific risk.
• Fidelity’s Investment Compliance Team oversees mandate limits, specific client requirements and how much of the company’s share capital a fund owns on a daily basis.

Fidelity’s Chief Investment Officers conduct a comprehensive quarterly review with each portfolio manager in their region, specifically to:
analyse the performance, stock attribution and structure of the portfolio

• evaluate the qualitative and quantitative details relative to the portfolio’s objective
• review the purchases, sales, trading activity and turnover of the portfolio
• assess the portfolio’s risk profile and level of active money relative to the benchmark

*As at 31 December 2009