Year in review: Fidelity business update

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It’s hard to know how to feel about the last 12 months. Tumultuous is the word that immediately springs to mind, dare I say unprecedented? However you describe it, it’s certainly a period in our lives that I think we’ll look back on with very mixed feelings.

Going into the second half of 2019, I remember feeling pretty optimistic. The business was performing well, our diversification plan to bring more of Fidelity’s global strategies to the Australian market was progressing and the majority of our new hires to help grow the business were complete and happily settled. Everything seemed rosy and I was really looking forward to summer and having a bit of down time after what has been an incredibly busy couple of years for the Australian business.

This of course didn’t quite eventuate as the country was ravaged by bushfire and drought in what turned out to be our darkest summer on record. A couple of months later we went into lockdown to face off against a global pandemic. You wouldn’t read about it…

A couple of observations

It’s certainly been a challenging period, but it’s also been a very interesting time to be leading an investment management business. The first thing to note is of course the resilience of people. Within a matter of days our business very quickly settled into a completely different structure of working. It was all remarkably flawless. Technology didn’t let us down; collaboration levels have been high, and productivity is stronger than ever. No business continuity plan can prepare you for something like this (although I’ve certainly added it to mine going forward) but to be honest it’s been a very smooth transition.

We’ve seen it in markets too. There was some initial jitteriness and shock, but markets quickly settled down to the more traditional look through approach. Periods of volatility are never easy, but I think investors are becoming increasingly sophisticated and understand that investing is a longer-term proposition. To paraphrase Paul Taylor, you must block out the noise and remain true to the fundamentals. Fidelity’s lucky in this respect because active management is built into our DNA. Taking the time to really understand the businesses we invest in gives us a huge advantage in being able to assess their long-term viability and capacity to withstand periods such as these. The size and reach of our research teams provides unique insights and analysis which I think we sometimes take for granted. We’re very fortunate in this regard and it’s allowed our investment teams to take a largely pragmatic approach and see the crisis as an opportunity to renew portfolios and upgrade at a time when valuations have been more favourable.

The second thing I’d mention (and it seems crazy that we’ve needed a pandemic to bring it to light) is that our established office face-to-face work-day is out-dated and needs to be reviewed. Trying to cram work, family commitments, school pick-ups, commutes and the usual life admin into an often-conflicting timeslot, just isn’t practical. Add to this people’s individual styles of working and productivity body clock and there’s quite a disconnect. Fidelity’s been moving to more flexible options for a while, but I think this will really give us a push to accelerate this to the next level.

Celebrating the wins

The last six months has really brought home to me the importance of celebrating the wins and being thankful for the good things and there has been some terrific moments. Early in the year we were delighted to be awarded Morningstar Fund Manager of the year, a moment which was made even sweeter by James Abela’s third consecutive win in the small to mid-cap category. These awards are the culmination of a huge amount of work right across the business and I couldn’t be prouder of the team.

Another important milestone was the launch of our first sustainable strategy, the Fidelity Water and Waste Fund. Today, our clients expect us, as stewards of their capital, to evaluate companies and company managements, on both their financial merit and on their approach and commitment to ESG factors. We’ve responded not only through the launch of the fund but more broadly by substantially increasing our focus on sustainable investment analysis, including the recent introduction of our proprietary ESG, sustainability company ratings.

Market outlook

The first half of 2020 will live long in the memories of Australian investors. Firstly, as a devastating health crisis and secondly, because of the massive impact that efforts to contain the spread of the virus has had on the real economy and investment markets. After the S&P/ASX200 hit record highs in February, we all watched astounded as markets tried to grapple with the impact of lockdown measures on businesses and companies, resulting in a peak-to-trough sell-off of -37% in only 20 trading days. Following record amounts of international and domestic fiscal and monetary stimulus, the Australian equity market stabilised and has subsequently risen by 29% from the March low, while Australian government bond yields remain around their all-time lows.

The huge uncertainty surrounding what comes next has resulted in significant dispersion amongst countries, asset classes, sectors, and companies. Despite the rebound in risk assets, the short-term outlook remains murky given that much of the global economy has not returned to normal, while in Australia many individuals and businesses are making use of emergency measures such as the JobKeeper allowance or mortgage holidays. The risk of a second or third wave of COVID-19 transmission is ever-present, and the international geopolitical backdrop suggests heightened levels of uncertainty for the remainder of the year given US elections and Brexit.

Given this backdrop and the extreme volatility we saw earlier in the year has reminded many of us of the value of active management. Fidelity’s active approach to investing has meant we’ve been able to navigate the crisis with less volatility than the market, helping our clients preserve capital and deliver a smoother journey.  It’s also reminded us that timing markets swings is extraordinarily difficult, so staying invested over medium and longer time periods is critical.  An active strategy that mitigates the downside risk and smooths the return over time can help investors maintain the confidence they need to stay invested and reach their investment objectives.

 

 

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