Maroun Younes
With market uncertainty increasing, investors should look to quality companies that have the ability to generate consistent profits and consistent returns regardless of the macro-economic environment, says Fidelity International portfolio manager, Maroun Younes.
“Historical data shows quality does well in uncertain environments, but where there is positive slower growth, such as the one we are currently experiencing. The macro-economic picture is becoming murkier, and the euphoria of high growth and positive sentiment is subsiding. This tends to coincide with periods where quality starts to rise to the top.”
Younes concedes there is debate about how to define ‘quality’. “Some academics focus on profitability metrics, margins, returns, and volatility of the earnings profile. Others use metrics like shareholder payout ratios and balance sheets to define quality.”
Younes says it is important to look at quality in the context of the valuation multiples as well as the business’ sustainability. “Resilience and durability are key. Investors should look for companies that can withstand the curve balls that the global marketplace throws from recessions, pandemics, wars, rising interest rate environments and increasing competition. Having a strong and solid footing means a business can withstand the impact from different forces effectively. This is the mark of a quality business,” says Younes.
The Fidelity Global Future Leaders Strategy has conviction positions that are expected to benefit from the inflexion in the market led by AI capex investments. “We have a high level of conviction in the sustainability of the AI capex build up for the next two years and hold a number of companies exposed to the trend in our portfolio. For example, we have maintained conviction in Halma (LON: HLMA) for some time now, and we have seen that rising hyperscaler data-centre investment has benefitted its photonics and technology solutions division. Our position in electrical services provider Comfort Systems USA (NYSE: FIX) rallied after reporting solid fourth-quarter results and highlighting a robust order backlog supported by sustained data centre demand,” he says.
Younes adds, “Recent geopolitical tensions have introduced a renewed layer of uncertainty in the market, but investors should not lose sight of their long-term goals. Quality can contribute to very strong performance in the long term. The message to investors is to stay the course, because over the long term, quality outperforms.”
