Michael Bargholz

Fidelity Worldwide Investment (‘Fidelity’) is pleased to announce that the minimum initial investment amount required in any one of its funds has been lowered from $500,000 to $25,000, across its fund range in Australia.

Previously, Fidelity’s product range has been available for a minimum initial investment amount of $500,000 or through the majority of investment platforms, at the platform minimum investment.  The launch of a wholesale fund range will ensure Fidelity’s highly regarded funds are available to advisers who prefer to buy funds directly.  Many SMSF trustees have a preference for investing directly into wholesale funds and until now they have had limited access to Fidelity funds.

The new $25,000 investment minimum applies across Fidelity’s product range available in Australia, including our award winning Fidelity Australian Equities Fund which celebrated a 10 year anniversary last month, the highly-rated Fidelity Global Equities Fund which itself reached a milestone of 15 years earlier this year, and our range of Asian equity funds.

Commenting on the announcement, Managing Director of Fidelity Worldwide Investment in Australia, Michael Bargholz, said: ‘The lowering of investment minimums is part of a long-term strategy to make Fidelity’s products more accessible and to continue to meet the changing needs of clients. Our research shows there is a buoyant market for wholesale funds.  We want to make sure Fidelity’s products are available to meet the needs of a broad section of the market.’

The post Fidelity Worldwide Investment lowers minimum investment amount appeared first on AdviserVoice.

“On a broad level, I expect global economic growth to remain muted in 2012, with a continued and marked divergence between developed world and emerging market growth rates” says Amit Lodha, Portfolio Manager of the Fidelity Global Equities Fund.

“The sovereign debt issues in the eurozone appear far from being resolved and I suspect the political intervention and consensus needed to stem the crisis will take time to materialise.”

While recent measures adopted by policymakers have boosted liquidity and taken the tail risk of Europe off the table for now, many banks there still have limited dollar liquidity.

“Credit deleveraging is likely to take place throughout 2012 and I expect Europe to enter into a recession.”

Mr Lodha feels that the ensuing policy responses will dictate the length and depth of the recession, and its socio-economic implications.

“I am also becoming incrementally concerned that Europe may be headed for a long period of slow economic growth similar to what happened in Japan.”

“Aside from Europe however, the picture is generally better,” says Mr Lodha. “I am more constructive on the outlook for the US economy which, to my mind, is best positioned for growth in the developed world given positive credit growth, falling unemployment and improving housing fundamentals. The fact that there are fewer excesses in the system also make the economy better placed to weather potential disruptions.”

He feels that emerging markets have significant long-term growth potential and many countries such as India, Indonesia and Thailand should benefit from inflation peaking in 2012.

“I expect the planned leadership change in China to be smooth, as the current government has undertaken sufficient policy tightening to create leeway for the new policymakers to settle in.”

In view of the current environment, Mr Lodha chooses to focus on quality franchises with strong balance sheets, which do not rely on banks for funding. He also looks for companies that own assets where supply/demand is tight, which sell products that all of us need on a daily basis, or companies that are doing something truly innovative, which gives them pricing power.

The portfolio’s positioning stems from Mr Lodha’s fundamentals based bottom-up stock picking approach. Many stocks held fall into thematic buckets which reflect where he is finding the most interesting investment opportunities.

Take the case of innovation, one of the key themes he is pursuing on a global basis.

“Innovation in processes or products is key to growing revenues, profits and addressable markets” says Mr Lodha.

“Companies such as Colgate Palmolive embody an ability to continually innovate across their product range and stay ahead of their peers; this is a great competitive advantage. This is even more significant for businesses that develop solutions to unmet needs, particularly in the health care and technology space. Take Irish pharmaceuticals group Elan, which makes bio-neurological drugs for Multiple Sclerosis. If its compound Bapineuzumab, currently awaiting results of late clinical trials, is proven to have therapeutic value for the treatment of Alzheimer’s disease, this would be of transformational significance for the company.”

In the current macroeconomic environment, he puts special emphasis on companies that can increase capital efficiency or are engaged in innovation that will not be impacted by what happens in capital markets or government regulation.

“Citrix is a good example here. Its technology infrastructure powers your access to your office at a lower cost to the company across multiple devices”.

Another area of interest involves the pursuit of companies benefiting from growing addressable markets. This thematic is also well represented in the portfolio and holds particularly true for internet retailers and companies in the technology sector, including Amazon, online auction marketplace eBay and paid search player Google.

“eBay’s PayPal unit is seeing an acceleration in growth that is being led by its increasing involvement with virtual payments and its transformation into the mobile payment system.”

Similarly, Google “has been diversifying its reach into new platforms (mobile, Google TV) and ad formats (display, video) to drive growth”.

“In fact, the secular growth in mobile search has helped offset any slowdown caused by a weak macroeconomic environment” he adds.

Another lesser known company he likes in this area is Rakuten, which owns the largest e-commerce site in Japan and among the world’s largest by sales.

He expects the increased penetration of smart phones and tablet devices to drive mobile data usage.

“While telecom operators and telecom equipment manufacturers are obvious beneficiaries of the multiplication of such devices, I also like telephony towers like SBA Communications in the US, which stand to benefit from the increased data traffic, which will require telecom operators to upgrade their network and install new antennas, and therefore rent more space, on their towers.”

Mr Lodha also looks to identify beneficiaries of demographic trends. For instance, he sees Japanese manufacturer of incontinence products Unicharm as a way to capitalise on the fact that more children use nappies in China and more adults use diapers in Japan, the country with the highest proportion of elderly in the world. Interestingly, another company he believes will benefit from the ageing populations in Japan, Korea and China “the manufacturing centres of the world” is Fanuc, the industry leader in industrial robotics and factory automation. 

Portfolio themes are often also reflections of the likely future macro environment. In keeping with the belief that emerging markets enjoys favourable structural growth prospects, Mr Lodha looks to invest in businesses likely to benefit from this theme. However, interestingly, his choices often step off the beaten track. This is reflected in some of his holdings in the health care sector, where developed market stocks are actually a play on emerging market growth.

“Sanofi, an undervalued large cap pharmaceutical firm with a strong and sustainable presence in diabetes treatment, vaccine and animal health markets exemplifies the sort of business I look to invest in. Not only does the company have a sizeable exposure to emerging markets, which should support growth, but its re-rating is also likely to be driven by positive capital allocation and resumption in earnings growth post the patent cliff.”

Another company he refers to is Burberry, which he sees as a way of capitalising on increased consumption and the emergence of new middle classes in China.

This is not to say that Mr Lodha avoids investing in emerging markets directly. He does so when valuation opportunities arise such as in the case of high quality Thai banks, Bangkok Bank and Kasikornbank, which were bought following share price weakness stemming from flooding in Thailand.

In keeping with where he sees growth prospects, Mr Lodha is also looking to tap beneficiaries of the US housing recovery. He believes housing starts are running well below normalised levels and could become main drivers for the economy later this year. Businesses like home improvement retailer Lowe’s and building materials company James Hardie, which “made money even at the bottom of the US housing cycle,” are expected to be key beneficiaries.

Mr Lodha also believes businesses likely to benefit from inflationary forces or those that have the pricing power to pass on higher costs to the end-consumer make for interesting investments at this stage of the cycle. The focus on gold stocks in the portfolio illustrates this theme.

“Excess liquidity stemming from monetary easing has pushed gold prices higher and gold mining equities are looking undervalued versus the current gold price. Prevailing global macroeconomic imbalances, geopolitical tensions and constrained supply further emphasise the positive outlook for such stocks.” For example, favoured position Goldcorp has one of the best growth profiles amongst its peers.

Mr Lodha feels “its high-quality asset portfolio- high grade assets located in safer geographies- balance sheet strength and great management team make for a great investment.”

Similarly, even when Mr Lodha does not have strong conviction on the direction of the oil price, energy holdings such as Schlumberger, are held because their pricing power is materialising as the service intensity of oil and gas production increases.

When asked about the risks at the forefront of his mind, besides those associated with the prevailing European sovereign debt crisis and the longer term headwinds caused by Western economies’ indebtedness, he notes some more immediate risks at a macro level from rising oil prices, which have the potential to put a brake on economic growth, and is also concerned that the Chinese growth slowdown is being underestimated.

Despite these risks, he remains cautiously optimistic and continues to find a host of interesting investment opportunities worldwide.

“Investing globally, rather than limiting oneself to a single country or region, makes a lot of sense. I like to look at entire value chains and be able to invest in those companies that have the most pricing power and the most leverage to the investment themes I want to play, wherever they might be based”. 

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 Worldwide Investment. 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 also should consider the Product Disclosure Statements (“PDS”) for respective Fidelity products before making a decision whether to acquire or hold the product.  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. The issuer of Fidelity’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Details about Fidelity Australia’s provision of financial services to retail clients are set out in our Financial Services Guide, a copy of which can be downloaded from our website at www.fidelity.com.au. © 2012 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity Worldwide Investment and the Fidelity Worldwide Investment logo and F symbol are trademarks of FIL Limited.

The post Where to now for global equities? appeared first on AdviserVoice.

From a macro perspective, there is no doubt that monetary tightening, higher commodity prices and electricity shortages are slowing China’s GDP growth. Credit tightening is having a serious impact on small and medium-sized companies, which will inevitably lead to more non-performing loans in the banking sector.

Automobile sales are weak due to government measures, housing sales are dropping and a weak domestic stock market points towards tightening liquidity. There is no question that China’s stimulus programs of 2009-10 led to some significant misallocation of capital and probably brought forward some commodity demand.

However, to my mind, all this suggests an engineered cyclical slowdown in the pace of growth, designed to control inflationary pressures, rather than signposts on a path to structural decline as some of the China bears would have you believe.

First, a few words on growth. HSBC recently published an interesting time line that put the development of various emerging markets into historical context by placing them on a timeline of US economic development.1 On this basis, China stands about where the US was in 1941. (Die-hard commodity bulls will notice that India is where the US was in 1882.)

However, what is even more interesting is that China is achieving in a decade what it took the US 50 years to achieve.
This rapid pace of innovation and productivity growth was apparent during my trip. For example, the Chinese have worked hard to increase the domestic supply of some resources and to bring down costs. In commodities like aluminium, bauxite, nickel and stainless steel, Chinese companies are innovating and are, in some cases, more competitive than western companies. In manufacturing, the significant size of the domestic market again gives Chinese companies a significant scale advantage, allowing them to invest more in R&D.

Property and consumption
Much has been written about the supposed property bubble in China. My view is slightly more nuanced than some of the recent commentary. It is true that property prices are towards the top end of their rising trend in real terms and the house-price-to-income ratio is high. The amount of floor space under construction has soared in the past decade and it is argued that prices need to drop to clear supply.

However, the strong counter-argument is that the total housing stock in China is still short of demand (according to some estimates, by almost 80 million units). Most of the supply has been at the top end and has been absorbed by investors paying cash (given a lack of other domestic investment alternatives in an era of negative real interest rates), leaving a real shortage in the middle and at the bottom end of the market. It is as if there has been massive over-building in Knightsbridge in London but too little construction outside the capital. The government, through its social housing initiative, is trying to set this imbalance right and, over time, this will support commodity demand.

Domestic consumption also remains a positive driver of demand for some commodities. Copper looks to be a beneficiary, thanks to its importance in, for example, air conditioning and car manufacturing. China remains committed to innovation and renewable technologies. New electric cars, for example, use up to three times as much copper as traditional ones. Cars are largely bought for cash in China and, with fewer than 60 cars per 1,000 people (compared with 750 in the US and an average of 150 in the world), the growth road stretches a long way into the future.

So, for me, the main insights from my recent trip were firstly that China remains on a structural growth path, even as it tries to navigate a near-term engineered cyclical slow-down to combat inflation.

The second was that innovation and productivity remain strong and, while rising labour inflation is a worry, increased GDP per capita will drive the economy more towards consumption-driven growth.

Thirdly, as China moves towards becoming a consumption-driven economy (as opposed to the investment-driven growth that it has experienced over the past 10 years), the outlook for consumption commodities (energy, platinum, potash, oil) will be superior to those driven primarily by investment spending (steel, aluminium, iron ore, etc).These changes will play to the strengths of stock pickers over the next 10 years.

The post Is China headed for a hard landing? appeared first on AdviserVoice.