Many stock funds that dropped in 2022 have shown signs of recovery in early 2023 as equity markets rebounded. But which of these funds are just bouncing off lows and which are solid long-term investments?
The aggressive Morningstar Analyst Bronze-rated Fidelity Global Innovators Fund is one of the latter. It has a unique investment strategy that focuses on two extremes of the market - stocks with weak fundamentals that are expected to improve, and the shares of companies that are innovating and gaining market share.
Theoretical Simplicity Meets Practical Complexity
Portfolio Manager Mark Schmehl employs a distinctive and intricate investment approach, providing him with a competitive edge over his peers. The fund faced challenges in the past two years. The fund ranked in the bottom fourth of the Global Equity Morningstar category in 2021 and 2022, but Schmehl has posted a strong performance in other strategies he has run for longer periods of time and this strategy still has good intermediate-term results, ranking first and second in its peer group over five and three years through Feb. 28, 2023.
Execution is Key to Consistent Performance
Schmehl follows a process that’s unique and hard to replicate. He relies on his intuition and momentum to set sector and security weights. He occasionally identifies additional opportunities within the same industry, or drills into sectors he expects will perform well. Schmehl has demonstrated an ability to identify winning sectors and trim those that are losing. For example, the fund owned more tech stocks than its index and peers from its inception to the end of 2020 because Schmehl continued to identify profitable opportunities in that sector. In 2021, the manager picked up energy stocks whose fundamentals had deteriorated because he believed the lockdown restrictions would be lifted at some point. Both moves proved successful for the fund.
Schmehl’s moves don’t always immediately pay off. While the fund cut its tech holdings by more than half in 2022, it still wasn’t enough to avoid steep losses in the technology stock selloff. So far, in 2023, Schmehl has moved the portfolio back into technology companies in the event the market favours growth stocks again.
Patience Rewards Long-Term Investors
Schmehl’s approach requires patience, but his long track record is a testament to his ability to navigate economic storms – he has survived the 2000 tech bubble, the 2007 financial crisis, and the recent COVID-19 pandemic in other funds where he uses a similar process, including Bronze-rated Fidelity Canadian Growth Company and Fidelity Special Situations. This strategy can reward investors willing to endure temporary setbacks.
