Fidelity Funds Portfolio Manager's Commentary on Recent Market Volatility



During periods of heightened volatility, Active Portfolio Managers can purchase fundamentally attractive companies at reduced prices.


Investors that are particularly concerned by recent market conditions but want to stay invested in the market can consider a number of options with a focus on downside protection that can provide a smoother ride.


Investors that want to take advantage of the market correction can consider investing in Actively Managed Funds that are more aggressively positioned for a rebound.


Things to remember:


  • Volatility is a normal part of long-term investing

  • Long-term investors are usually rewarded for taking equity risk

  • Market corrections can create attractive opportunities

  • Avoid stopping and starting investments

  • The benefits of regular investing tend to stack up

  • Diversification of investments helps to smooth returns

  • A focus on income increases total returns

  • Investing in quality stocks delivers in the long run

  • Don’t be swayed by sweeping sentiment

  • Active management can offer benefits in periods of increased volatility


Geoff Stein, David Wolf, and David Tulk (Global Asset Allocation Team) believe the severity of this sell-off has primarily been caused by panic more than any long-term structural impairment. However, this panic has elicited a response from central banks, which should eventually limit this draw down.


The portfolio managers continue to be prudent and diversified within their portfolios, are looking at macro themes that will unfold over 1-3 years, and are not overly concerned by sporadic increases in volatility or risk aversion. They are of course remaining vigilant in looking for opportunities to respond should the market deviate significantly from what they think is appropriate and their current positioning allows for that flexibility.


Mark Schmehl believes that this is a great time to make money as panic has created indiscriminate selling. He continues to believe that the impact from COVID-19 is transitory and over the long-term the markets will start to look past it.


Against this backdrop, he continues to ignore the short-term noise and own the secular winners. During the pullback, Mark has added exposure to health care, including several biotech and specialty pharma companies. Additionally, he has increased exposure to certain technology companies during the sell off and trimmed those that look less attractive.


Mark is focused on investing in companies that stand to benefit from the digital transformation of the world. He is particularly excited about the prospects for companies in the cloud computing and e-commerce industries, which he believes are becoming more important to society and the economy.


Looking forward, Mark’s long-term outlook remains intact. He believes the markets will continue to be volatile and is focused on capitalizing on the opportunities that volatility provides to buy those long-term secular winners. He believes the worst thing you can do right now is to engage in panic selling as timing the market is next to impossible to do.


Will Danoff continues to have a positive long-term outlook. Regarding this recent volatility, Will does not overreact to short term movements as he sees these occurrences as buying opportunities to add to his favorite positions.


Will has experienced several 10-15% corrections over the last few years but he continues to use these periods to upgrade the portfolio. Will remains bullish on tech companies as consumers do more on the internet and businesses pursue "digital transformation" strategies to engage more meaningfully with their customers.


The critical trend in technology is that more people have access to powerful smartphones and are increasingly spending time on the internet. And enterprises are following their customers online, investing more money in tech infrastructure and moving some – and sometimes most – of that infrastructure to the cloud.


He believes these trends will continue for the foreseeable future, and thus has maintained a large commitment to tech, where he emphasizes what he considers to be great franchise companies. He continues to monitor tech-related holdings, looking for changes in the landscape and staying flexible in case fundamentals deteriorate.


Steve MacMillan notes COVID-19 has significantly contributed to the heightened volatility that the market has experienced. It is clear that it will have an economic impact but the magnitude of this damage is hard to predict as the number of cases continues to rise globally and there is minimal insight into medical advancements.


This uncertainty is negatively impacting investor sentiment. In these periods of higher volatility, investors will likely be presented with more opportunities to make mistakes - and to panic. Steve’s goal is to reduce those opportunities by offering a risk profile that is lower than that of the overall market, but still exposes investors to the return potential of investing in equities.


Looking at the U.S. economy as a whole, we have been in the late stages of the economic cycle for quite some time now. There is a chance that if the virus continues to spread that it could tip the economy into a technical recession. That said, times like this provide a stern reminder that diversification and capital preservation are imperative to achieve long-term goals.


Joel Tillinghast believes it is too early for the managers to have a full view on the breadth and depth of the impact of COVID-19. He is actively researching their companies to gauge the impact.


Historically, with macro events like this, stocks usually (but not always) react correctly from a direction standpoint but overreact from a magnitude perspective. If this happens, he may actually lean into the opportunity. But again, this depends on his assessment of the risk and how the change in security price compares to the change in fundamentals.


What Joel tries not to do is participate in panic selling or buying without fully vetting the options. He doesn’t manage the portfolio with a top-down macro driven view. Instead, he builds it bottom-up based on the stocks that have the best combination of value, quality, consistent cash generation, and capable management teams.


Don Newman has been monitoring the markets very closely as the severity and swiftness of the downturn has surprised investors. Prior to the current situation in the market, Don had been taking below average risk as he believed valuations were stretched and global growth was at a decade low, creating lower than average expected return.


Although the current situation in the markets with regards to COVID-19 has been unexpected, individual stock valuations look a lot better now. Don believes the virus will pass at some point and selling has started to become indiscriminate, with really good businesses going down as much as weaker names.


As a result, Don has been allocating aggressively to individual stocks that have been reaching his buy zone and he continues to look for names to add to his portfolios.

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