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Our focus is to identify long-term winners. See for yourself how the Fidelity Global Equities Fund, a portfolio of 80-120 of our best global ideas, has performed.

Graph value of $10,000 invested since inception vs the benchmark

    Fidelity Global Equities Fund
    0
    Benchmark MSCI Country World Index Net
    0

    Chart as at: 30/09/17

    Past performance is not a reliable indicator of future performance. The return of capital is not guaranteed. The net returns include any reinvested distributions and are after fees and expenses. No allowance has been made for tax or the buy/sell spread.


    Fund inception: 15 April 1998

    Insights

    Q4 2017 investment outlook: Braver for longer…

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    > Download presentation to use with clients
     

    In brief

    • Bull market still intact but now in its last phase
    • Solid global growth and robust earnings growth are supporting stocks
    • Pockets of rich valuations are becoming a concern in a range of asset classes 
    • Bond markets will be driven by central bank policy, inflation data and the outlook for China
    • The risk of policy mistakes remains elevated
    How long can the good times roll? The second-longest yet arguably most-hated bull market in post-war history just grinds on and on, while investors get more worried by the day. Valuations in some areas are certainly becoming stretched, but overall they remain some way off the peaks seen in 2000. Fundamentally, we are still in the goldilocks low-growth, low-inflation environment that has provided a benign backdrop to markets for some time. The uneasy imperative for investors then is to be ‘braver for longer’. The caveat is to do so while introducing incremental steps to manage downside risk.
     

    Three key themes

    1. The bull market is its final phase - it’s a case of hanging on for now 
    We have travelled a long way in this bull market and some of the drivers that have sustained it are beginning to look played out. Yet, history suggests the current situation could run on for some time. An early market exit runs the risk that a lot of potential return is left on the table. Global growth is still solid, while earnings growth is also supportive. Dividend yields on the S&P500 are in excess of 10-year treasury yields, so there is still relative valuation support for stocks.
     
    2. The central bank dilemma: cyclical or structural?
    Central banks have a difficult job to do in separating cyclical and structural drivers at present. The key question to answer is whether we are seeing a sustainable recovery or simply a cyclical pick-up within a secular stagnation environment? In our view, the current cyclical uplift is not enough to justify meaningfully higher yields, with structural issues such as debt overhang, ageing populations and low productivity giving investors and central bankers plenty of reasons to expect growth and inflation to stay low for some time. 
     
    3. Inflation is the key factor to monitor
    Given low unemployment levels, we could have expected inflationary pressures from higher wages, but this is not happening. The implication is that the US economy is not as strong as the headline employment numbers would superficially suggest. US inflation has been unusually weak for a streak of six consecutive months. Chair Yellen believes the inflation weakness will be temporary - despite cutting the Fed’s own inflation forecasts. The Fed projections still indicate a rate rise in December and three ‘data dependent’ rises in 2018. Further weakness in inflation numbers would raise questions about the true state of the US economy, so US inflation data is the one to watch.
     

    Asset class outlooks

    Equities
    The S&P500 has been hovering around the 2400 range for the last few months. It is still possible to make a case for the market getting to 2700. We cannot expect further expansion of valuation multiples, but we are seeing double-digit earnings growth. Based on current outlook for earnings, we could see total returns of c.5-6%. For this to be attractive though, volatility needs to stay low. 
     
    The narrow focus on technology means that a handful of large stocks have driven much of the market’s gains this year. The FAAMGs* have shown lower implied volatility than the market and even consumer staples stocks. This means these stocks are being bought for their defensiveness and their ability to beat earnings targets based on their dominant market positions. This is quite a different dynamic from the 1990s tech boom where we saw a more pronounced desire for speculative gains.  
     
    Fixed Income
    The Fed left interest rates unchanged at its September meeting, but indicated one more hike may be likely in the fourth quarter despite subdued inflation. Markets now expect a hike in December, but it remains to be seen whether we will see three ‘data dependent’ hikes in 2018. Inflation data will be critical in this regard - it is now the key metric governing rate decision-making - and we think the Fed might be forced to err on the side of caution, keeping a cap on yields. The well-telegraphed process of shrinking the Fed’s balance sheet will kick off in October. In Europe, the key decisions around QE composition and the timeline for tapering were pushed back to the October meeting, so policy normalisation in Europe still appears some way off and tapering is now unlikely until at least 2018.
     
    Alternatives
    Physical real estate remains an attractive investment - the unexpectedly strong and synchronised upturn in Europe will support the commercial real estate market. A focus on core plus/value add is our strategy of choice on the continent, while a focus on the security of lease and tenure ought to offer outperformance in the UK.  
     
    Within commodities, short-term oil fundamentals look positive. The uptick in the US rig count has stalled and inventory falls are running stronger than their seasonal patterns. In the medium term, however, higher oil prices will ultimately incentivise US shale production. Infrastructure valuations are stretched, but the asset class remains useful for its diversifying, uncorrelated returns. We like the renewables sector where M&A has picked up strongly; this tends to be higher-yielding and involve less project leverage than other infrastructure investments. 
     
     

    This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”).  Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International.

    Investments in overseas markets can be affected by currency exchange and this may affect the value of your investment. Investments in small and emerging markets can be more volatile than investments in developed markets.

    This document is intended for use by advisers and wholesale investors. Retail investors should not rely on any information in this document without first seeking advice from their financial adviser. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider these matters before acting on the information.  You should also consider the relevant Product Disclosure Statements (“PDS”) for any Fidelity Australia product mentioned in this document before making any decision about whether to acquire the product. The PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading it from our website at www.fidelity.com.au. This document may include general commentary on market activity, sector trends or other broad-based economic or political conditions that should not be taken as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be taken as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. This document is intended as general information only. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Reference to ($) are in Australian dollars unless stated otherwise. 

    © 2017 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

     

    Outlook for Global Equities

    On the surface the global outlook is certainly more positive than it was this time last year. Geopolitical risks are now easing whilst the European and Asian economies are looking relatively healthy.

    Global equities look attractive versus other asset classes. From a regional perspective, US valuations look expensive, with the US having outperformed the rest of the world over the past 5 years.

    The Federal Reserve (Fed) appears to have shifted from accommodating markets to focusing on labour markets and inflation. With fewer global issues to concern itself with, recent Fed comments would imply US rates are set to rise further and faster than the market expects. This would potentially signal the end of this economic cycle. On a positive note and despite the market’s bullish expectations waning of late, it is hard not to see some form of fiscal stimulus to come out of Washington.

    Geopolitically, Europe is increasingly cohesive, with the positive outcome of the French election there are now realistic hopes of positive reform moving forwards. However, potential flashpoints in the Middle East and North Korea remind us that risks remain. The Chinese have made little demonstrable progress on their debt problem and it is hard to see any real reform ahead of the Party Congress in November. That said, the immediate horizon looks clear.

    Europe and Asia are attractive on a relative basis, and Emerging Markets remain interesting. As ever, we remain focussed on stock specifics. It is still possible to find companies whose ability to generate superior profits is undervalued and the ever-changing world of technology continues to provide us with developments to play. Despite a seemingly more benign backdrop, investors need to remain vigilant. Volatility remains low and this can breed complacency from a risk management perspective. Under the surface the market remains rotational. Capital preservation should remain a top priority for investors over the next 12 months, as it is for me.

    This document may include general commentary on market activity, sector trends or other broad-based economic or political conditions that should not be taken as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be taken as a recommendation to buy, sell or hold these securities. This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”).  Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International.

    Investments in overseas markets can be affected by currency exchange and this may affect the value of your investment. Investments in small and emerging markets can be more volatile than investments in developed markets.

    This document is intended for use by advisers and wholesale investors. Retail investors should not rely on any information in this document without first seeking advice from their financial adviser.  You should consider these matters before acting on the information.  You should also consider the relevant Product Disclosure Statements (“PDS”) for any Fidelity Australia product mentioned in this document before making any decision about whether to acquire the product. The PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading it from our website at www.fidelity.com.au. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. This document is intended as general information only. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Reference to ($) are in Australian dollars unless stated otherwise. 

    Investments in overseas markets can be affected by currency exchange and this may affect the value of your investment. Investments in small and emerging markets can be more volatile than investments in developed markets.

    © 2017 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

    From the desk of Fidelity’s Amit Lodha

    Amit Lodha, Portfolio Manager Fidelity Global Equities Fund 
     
    For us stock pickers, views on markets are necessarily driven by what we hear from talking to our companies and the ecosystem they operate in. The micro drives the macro, which is what bottom up stock picking is all about. So what can we tease out about the macro from the micro?
     
    First the state of play 
    Interest rates are low and the cost of money is cheap. In a nutshell, whether is it governments, corporates or consumers, we are all making promises today that we may not be able to keep tomorrow.  
     

    Source: Bank of America Merrill Lynch Global Investment Strategy, Bank of England, Global Financial Data, Homer and Sylla “A History of Interest Rates”(2005). 

     
    This low rate environment has had three primary consequences:
     
    1. We have had one of the strongest bull markets across asset classes since the 1970s. Unlike the 2000 tech boom, for example, which was localised in the technology sector, all markets & asset classes from bonds to equities to real estate have participated. This has implications for wealth protection - when the inevitable downturn comes it will be difficult to find places to protect capital. In our current analyses, equities still come out (on a relative basis) as the best house in what is a really bad neighbourhood.
     
    2. Low rates have also led to some misallocation of capital, and one only has to look towards the price performance of bitcoins to see that indeed there are some bubbles bubbling away - again a symptom of the cheap money.
     

    Source: Fidelity International, Bloomberg 

    3. Many market participants look at the volatility we see on the social and geopolitical world stage (the real world) and struggle to understand the low levels of volatility in financial markets. In our view this is another function of negative real rates and the low economic growth. It is certainly clear that the current stability is breeding future instability and that we are experiencing the calm before the storm.  
     
    How is one to make sense of the way forward? While warning signs flash everywhere, the market continues to rise and the fear of missing out continues to drive investment behaviour. In our view, one needs to continue to engage with markets but without being complacent.  
     
    Making sense of the warning  lights
    To help make sense of these markets, we monitor a simple dashboard of key indicators. The indicators flashing red are all well-known and need less explanation. Those flashing orange need to be monitored closely. But it the indicators currently flashing green that we ought to be most concerned about – a change here will drive the future direction of markets.  
     
    Flashing RED
    Valuation ratios are near all-time highs, see the Shiller PE in the chart below.

    Source: Fidelity International, Top - S&P & Robert Shiller, Bottom – Bloomberg as at 31 August 2017

    Recently we have seen strong business momentum and for the first time in recent memory companies across the world from Europe to US to Emerging Markets are talking of a recovery in activity. This is well reflected in the ISM Index and unemployment indices, see charts below. 
     
    Momentum

    Source: Fidelity International, Top - S&P & Robert Shiller, Bottom – Bloomberg as at 31 August 2017

    Unemployment

    Source: Fidelity International, Top - S&P & Robert Shiller, Bottom – Bloomberg as at 31 August 2017

    The main concern here? If things can’t get any better then “buyer beware”; it can probably only get worse.  
     
    Flashing AMBER
    A condition which is normally the precursor to a bear market is the flattening of the yield curve (the difference between the 10yr and 3month rate). This has been happening for a period of time and should make us cautious.  
     

    Source: Goldman Sachs Global Investment Research, September 2017

    Flashing GREEN
    Oil prices, inflation & the labour market: The indicators in green (for now) are those which drive inflation - Inflation is low as oil prices are stable at a low level and there is no hint of wage inflation as markets believe that AI will take the white collar jobs and automation/robotics the blue collar jobs - leaving labour with no pricing power.   
     
    Global rates of inflation
     

    Source: Fidelity International, Bloomberg as at 31 August 2017. 

    Oil price (Brent) 

    Source: Fidelity International, Bloomberg as at 31 August 2017. 

    This is where we think things might be changing at the margin. Talking to companies around the World, we get a sense that everyone is finding it difficult to hire: In Japan the cause is demographics and ageing, in the UK Brexit is already creating a shortage of immigrant labour, in Europe construction projects are getting delayed due to short supply of labour and in the US Mexican/Latino labour is in short supply also causing some wage inflation. Furthermore, while overall average wage statistics have not moved, if you peel the onion you can see that millennial wages have been rising smartly - companies have been raising wages to attract labour.  
     
    In our view, it is only a matter of time until these trends make it into the headline economic statistics. We consequently believe that interest rates are too low in an environment where economies are moving positively in a synchronized global fashion.  After all, central banks can only raise rates (from these unprecedented low levels) in a positive economic environment - no one raises rates in a recession - and it would be nice for policymakers to have some fire power for the next economic downturn.  
     
    Acknowledging that falling rates have been a significant factor in taking market levels to where they are, we would expect volatility in equity markets to rise as and when a data dependent Federal Reserve reacts to rising wage pressures pushes policy rates higher.      
     
    Investing in this environment
    We continue to believe that in an uncertain environment where, to use a cricket analogy everyone is playing for the T-20s, investors are best served to extend their time horizons and play for the Test series. The investor toolkit is simple:
     
    1. Understand and analyse the impact of long term trends like demographics and technologies like artificial intelligence on the changing industry structures and profit pools.
     
    2. Find and back smart management teams, who can use these trends to their advantage to protect and grow their economic moats - managing disruption smartly is where pricing power will lie.
     
    3. Industry analysis needs to be global rather than local. Whether you are analysing Westfield, Coles or Woolworths, the impact of Amazon is important to consider. Having corporate relationships and research on a global basis is no longer a good to have, it is a must have.  
     
    4. In a market which is absolutely expensive, valuations continue to be our North Star. This is the one area where we believe active management can continue to protect client capital but this will require discipline. As investors searching for value, we must focus on that one variable which is important –cash. Ultimately the value of a stock is the sum of the cash flows that accrue over time to us as shareholders.  Cash is generally free from most accounting jugglery. Hence in our analysis, we give a high weight to cash flow metrics, seeking to determine what the free cash flow to shareholders is, how much cash is returned to shareholders as dividends and how much cash is really reinvested back for growth at similar or higher rates of returns.  
     
    A final word on disruption
    The pace of disruption is increasing. However, we are done with stage one - the disruption itself. The markets have voted who the winners and losers are. As the opportunity set becomes more diverse there are some things the markets are not thinking about; regulation, cyber-security and privacy considerations for the likes of Amazon and Facebook (we will write more to you on this in a future note). There is work to be done to sift through those companies who have been disrupted - some are not giving us any hope to bet on them, whereas others, like JP Morgan & Microsoft, have stood against disruption, spent, partnered and seem to have a strategy to win.   
     
    A good diversified equity strategy needs to be considering all these trends and taking advantage of the opportunity that Mr Market offers through identifying strong management teams. Investors need to spend a lot of time analysing industries, with a focus on valuations - in a world of very high valuations you need to avoid the bubbles and the dislocations.  To return back to cricket; hit the ones and twos (and the occasional boundary when the opportunity comes) and avoid the value traps – then you have a match winning strategy even if the odds are increasingly stacked against you.    
     

    This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”).  Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International.

    Investments in overseas markets can be affected by currency exchange and this may affect the value of your investment. Investments in small and emerging markets can be more volatile than investments in developed markets.

    This document is intended for use by advisers and wholesale investors. Retail investors should not rely on any information in this document without first seeking advice from their financial adviser. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider these matters before acting on the information.  You should also consider the relevant Product Disclosure Statements (“PDS”) for any Fidelity Australia product mentioned in this document before making any decision about whether to acquire the product. The PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading it from our website at www.fidelity.com.au. This document may include general commentary on market activity, sector trends or other broad-based economic or political conditions that should not be taken as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be taken as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. This document is intended as general information only. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Reference to ($) are in Australian dollars unless stated otherwise. 

    © 2017 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

     

    Unearthing global pricing power

    With local insights from our research team based around the world, we have the unique ability to understand the eco-systems of the companies we invest in. This helps us make smarter investment decisions. Hear more from Amit Lodha, Portfolio Manager of the Fidelity Global Equities Fund.

    Fund facts

    Why Fidelity?
    Who we are
    About the Fund
    Past performance
    Top 10 holdings
    Understanding risk
    Management fees, distributions & minimum investment amount

    Learn more

    The Fidelity difference

    • 400 investment professionals3

      On the ground in 13 countries we have one of the largest buy-side research teams in the world. No matter which county a company operates in, we can call on our own world-class team to research its local and offshore connections first-hand.

    • 2,500 stocks researched

      The global equities universe is the richest opportunity set you can find. We focus on finding ideas beyond the indices. We focus on finding the winners of the future.

    • 360 view of stocks covered

      Our unrivalled global research network provides on-the-ground local touch points to each part of a company’s value chain. This enables smarter investment decisions as we gain a deep understanding of every company in which we invest.

    • 1 global research platform

      We operate on a single global platform with coverage across regions, sectors and market cap bands. This gives us a unique ability to connect the dots on a global basis and identify investment themes and ideas across different market cycles.

    Source: Fidelity International. Facts are correct as at 30 June 2017.

    A 360 degree view gives us the edge

    Naspers

    Naspers is a holding company for a group of media, communication and internet assets in more than 120 countries. Naspers is well known for its 34% holding in Tencent, the leading internet and mobile platform in China. Naspers meets our investment criteria with its strong management team and prospect for growth via their exciting media and internet properties in various markets.

    Meeting with management, suppliers, customers across the value chain

    Meeting

    Our analysts meet with Naspers in Johannesburg and London, and with Tencent in Beijing and Hong Kong. We talk with various unlisted parts of Nasper’s internet empire, such as Flipkart - the leading e-commerce website in India. Regularly meeting with Nasper’s competitors also provides insight into potential risks to our investment thesis.

    Shared in real time

    Through our proprietary global research platform, information on these meetings and other financial analysis is shared in real time with Fidelity analysts and portfolio managers in London and China.

    Refresh our views

    We constantly refresh our information, and we don’t just meet with management, we meet with competitors, suppliers and distributors. Every 120 days our analysts provide an updated note and earnings model for Naspers and every company they cover.

    Smarter investment decisions

    It is our obsession with research, with insights locally and globally which enable us to value a complex business such as Naspers. Informed by our 360 view, it is these types of companies with sustainable pricing power and strong management that we like to include in our portfolio.

    Information current as at 25 January 2016. References to specific securities should not be taken as a recommendation to buy, sell or hold these securities and may not represent actual holdings in the portfolio at the time of this viewing. For illustrative purposes only.

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    Important information

    • 1. The major investable global universe means the world’s major market capitalisation for equities (as measured by the MSCI Asia-Pacific ex Japan, the MSCI Europe, the MSCI Japan, and the S&P 500 (US)) and global investment grade universe for credit (as measured by the Barclays Global Aggregate Corporate Index) at any point in time.
    • 2,3. Source: Fidelity International, 30 June 2017. ‘Investment professionals’ includes portfolio managers, analysts, research associates and traders. References to specific securities should not be taken as a recommendation to buy, sell or hold these securities and may not represent actual holdings in the portfolio at the time of this viewing. For illustrative purposes only.

    Fidelity data as at 30 June 2017 unless otherwise stated. This webpage is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International.

    Prior to making an investment decision, retail investors should seek advice from their financial adviser. This webpage has been prepared without taking into account your objectives, financial situation or needs. You should consider these matters before acting on the information. You should also consider the relevant Product Disclosure Statements ("PDS") for any Fidelity product mentioned in this webpage before making any decision about whether to acquire the product. The PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading from our website at www.fidelity.com.au. This webpage may include general commentary on market activity, sector trends or other broad-based economic or political conditions that should not be taken as investment advice.

    Information stated herein about specific securities is subject to change. Any reference to specific securities should not be taken as a recommendation to buy, sell or hold these securities. While the information contained in this webpage has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. This webpage is intended as general information only. The webpage may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Reference to ($) are in Australian dollars unless stated otherwise.

    © 2017 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

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