Three stock picks for 2021

Three stock picks for 2021

Kate Howitt join Morningstar's Lex Hall to share three of her stock picks for 2021.

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. Please remember past performance is not a guide to the future. You should consider the Product Disclosure Statements (“PDS”) for Fidelity products before making a decision whether to acquire or hold the product. Investors should also obtain and consider the Product Disclosure Statement (“PDS”) for the fund mentioned. The relevant PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading from our website at www.fidelity.com.au. This webcast or podcast has been prepared without taking into account your objectives, financial situation or needs. You should consider such matters before acting on the information contained in this webpage including any linked webcasts or podcasts. This webcast or podcast may include general commentary on market activity, industry or sector trends or other broad based economic or political conditions which should not be construed as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be construed as a recommendation to buy, sell or hold these securities. While the information contained in this webcast or podcast has been prepared with reasonable care no responsibility or liability is accepted for any errors or omissions or misstatements however caused. References 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 other more developed markets. Fund references are correct at time of first publication but are subject to change and may not represent actual holdings in the fund at the time of this viewing. The webcast or podcast may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity funds is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). 

© 2021 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International, and the Fidelity International logo and F symbol, are trademarks of FIL Limited.

 

 

 

 

Lex Hall: Hi, I'm Lex Hall for Morningstar. Today, I'm joined by Kate Howitt who oversees Fidelity's Australian Opportunities Fund. She is here today to examine a few key holdings and what she sees for them in the future.

Welcome, again, Kate to Morningstar.

Kate Howitt: Thank you.

Hall: Now, the first name on the list is an Australian company and a leader in ESG, has become somewhat of a leader in ESG and that's Macquarie Group. Tell us why that holds such an integral part in your fund.

Howitt: So, we think Macquarie is a fascinating business. They've obviously had a very, very strong track record from their founding a couple of decades ago and their growth throughout Australia and now around the world. What's interesting to us is they have grown beyond their kind of narrow roots of broking and investment banking into funds management. But increasingly, they are positioning themselves for what will be the biggest opportunity in financial services of the coming decades and that is the need to mobilise capital to decarbonise. Now, estimates are that we will need to deploy somewhere between US$100 trillion and US$150 trillion over the next couple of decades. Now, in context, the US economy is about $21 trillion. So, that's saying that at some point over the next 30 years, we need to take five to seven of those years, and not do anything else in America except invest to decarbonise. That is the scale of it is, absolutely enormous.

Now, Macquarie have identified the fact that there is a role for a financial intermediary. And so, they have been hiring subject experts because if they can understand the physics and the engineering and the execution and implementation of all the different technologies, then they will be best placed to advise and they will advise on the producers, on the consumers, on the developers, the project managers, the government parties. They can be well-placed to position themselves anywhere in all of that mobilisation of capital. So, it's kind of a picks and shovels play on ESG. They're not going to be developing new green technologies themselves, but they will be supporting and enabling hundreds of companies around the world and all of their clients and customers who want to do that. So, we think that that is a longer-term theme.

Hall: I heard you say – just on that note, I heard you say in a previous interview that it depends on turning circle brown companies into green companies. And by that I think you mean turning, let's say, for example, a manufacturer of conventional cars and you help them turn into makers of electric cars, because they've already got some of the infrastructure that will allow them to do that. Am I on the right track there?

Howitt: Yeah, look, absolutely. The whole trick for the world is to keep the bill closer to US$100 trillion rather than US$150 trillion. And so, we'd have to be efficient about this. And so, I personally think it's a mistake to go into ESG investing from an exclusionary basis. Because we need companies who are today 100 per cent brown but able to help the world go green. For example, locally listed Santos, currently, every dollar of their revenue comes from selling carbon. That's obviously not a future proof strategy. But they also through an accident of history happen to be one of the leading operators of carbon capture and underground storage already. And so, they will be able to use that to then ramp up hydrogen production, ammonia production, and help with decarbonisation of a lot of other industries. We should be supporting that, not penalising them.

Hall: Would you support a company like Whitehaven Coal, therefore?

Howitt: Well, if they could show that they had a viable path to taking their cash flows to decarbonising and contributing to taking carbon out of the atmosphere, then we'd look at it.

Hall: Okay. Second name on the list is Evolution Mining. Tell us why that's in the frame for you.

Howitt: Yeah. So, you can look at it in two parts. Firstly, Evolution is a gold mining company. So, you can have all of the macro concerns around government's excess spending, excess debt, how are they going to deal with that risk of inflation. So, you can make a pretty good macro case that you want to have some real assets or some assets, hard assets that will hold up under an inflationary environment and in which case, you'd want to own some gold, particularly in the Australian context, and Evolution is a great option.

You can forget all about that and just think of it as a cash generating business. Where the Aussie gold price is and their cost base is, they generate a lot of cash and they've been very good capital allocators through time of giving that cash back to shareholders rather than just using it to overpay to grow the business. So, even without a gold view, you can like that company.

Hall: Okay, great. All right. And the final name again a minor and we alluded to this in a previous video, Nickel Mines.

Howitt: Nickel Mines is a really interesting business. They are partners with a Chinese privately-owned company called Tsingshan, who operate the world's largest nickel laterites operation out of Indonesia. Now, Nickel Mines are not the operator. They are joint venture partners, and they assist with funding. And so, it's a really unique opportunity for Australian investors to kind of go along for the ride as Tsingshan expands that operation. Now, it gets really interesting on the ESG front. On the positive, we need massive new supply of nickel if we're going to build the batteries we need to decarbonise. However, nickel laterite production historically has been incredibly carbon intensive. So, net-net, are you really helping the planet? Tsingshan has committed to do aggressive new implementations of solar energy generation that will help to mitigate that. So, whilst we're excited about the carbon opportunity, we also are very much watching to make sure that the company makes good on these goals that they've set because we do want to see a net benefit to the planet from this operation.

 

Share:
 

Ready to invest in the Fidelity Australian Opportunities Fund?

Discover now
 

Want more insights like this?

Get our free, monthly e-newsletter bringing you valuable insights, opinion and education.

Subscribe