Fidelity: Analyst Survey 2023: Portfolio manager views

Kris Atkinson, Portfolio Manager, Fidelity Sustainable MoneyBuilder Income & Short Dated Corporate Bond Funds  

This year’s survey shows that the fortunes of individual sectors are expected to diverge quite sharply over the course of the year. Given the impending slowdown (albeit less severe than the market thought last year), we are biasing the portfolios defensively in credit from a sector standpoint, while maintaining a positive credit beta given the more attractive spread compensation in investment grade. This translates to a preference for secured bonds that benefit from underlying asset or income security and non-cyclical assets such as utilities. We are also biasing away from issuers whose business models are more sensitive to the consumer.

The results also touch on the importance of cost pressures and higher funding costs for companies in 2023. This suggests stock selection will be key for navigating the year ahead and we are working closely with our analyst team to scrutinise company balance sheets to assess whether they can withstand elevated funding costs. Furthermore, with quantitative easing (QE) turning to quantitative tightening (QT), company fundamentals will be more important than they have been for most of the post-global financial crisis era. Bottom-up credit selection will be essential for the medium term.

Eugene Philalithis, Portfolio Manager, Fidelity Multi Asset Income range

Economic uncertainty remains high, with growth and inflation data critical in the coming months. In our Multi Asset Income funds, we remain cautious on developed market risk assets (both equities and high-risk credit) and have increased our allocation to high quality duration assets significantly over the past six months, which they stand to do better in our base case. 

There are definitely opportunities in equities, but we are taking a more selective approach. As the Analyst Survey indicates, China is expected to present opportunities this year, with post-Covid reopening and policy announcements supportive of the growth outlook. We have some exposure to China equities but we also like broader Asian equities, including ASEAN. We have also been adding to healthcare, a sector with defensive properties and pricing power, and European banks, which benefit from strong revenue growth and attractive valuations. On the debt side, apart from high quality duration assets, we have been incrementally adding to emerging market local currency debt exposure as they offer high real yields against a backdrop of falling inflation.

Jamie Harvey, Portfolio Manager, Fidelity Sustainable Global Equity Fund

I am greatly encouraged by this year’s Analyst Survey that shows another strong year of progress on sustainability initiatives. Our analysts clearly see companies increasingly prioritise not only better communication and disclosure of sustainability metrics, but, crucially, strong action to improve real-world performance. In what has clearly been a challenging year for company management teams, the fact that sustainability remains so high on an otherwise busy agenda goes to show how important this topic has become. 

One particularly encouraging area is the progress toward net zero, where our analysts expect 42% of companies globally will be carbon neutral by 2040 and 68% by 2050. Such a transition will require significant investment. With the US Inflation Reduction Act and the recent European Green Deal Industrial Plan set to provide compelling financial incentives, I expect a marked acceleration in demand for the products and services that enable companies to reach net zero. This is just one structural growth driver of many that I believe will create significant opportunities across the sustainable investment universe that we aim to capitalise on in the years ahead.

Hyomi Jie, Portfolio Manager, Fidelity China Consumer Fund

For China, self-sufficiency or import substitution will be a major consumer theme of the next five years and one has been frequently addressed by the country’s leadership. As such, I believe domestic brands, together with high-end manufacturing and consumer services, could benefit from the accelerating supply chain localisation. The premiumisation trend in China has also held up well. It has already demonstrated much resilience amid the weak economic outlook and will continue to offer long-term structural opportunities. Additionally, I believe growth will be more balanced arising from lower-tier cities and improving social benefit coverage across the urban and rural population. 

This wealth redistribution - highly supported by the government - could address quality and inclusive growth either via tax breaks and/or direct subsidies. Furthermore, shopping is something to watch out for as Chinese shoppers are likely to return to global tourism, supported by largest ever savings levels and pent-up demand for traveling.

Important information

This information is for investment professionals only and should not be relied upon by private investors. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. Investments in emerging markets can be more volatile than other more developed markets. Changes in currency exchange rates may affect the value of investments in overseas markets. Fidelity’s range of funds can use financial derivative instruments for investment purposes, which may expose them to a higher degree of risk and can cause investments to experience larger than average price fluctuations. The value of bonds is influenced by movements in interest rates and bond yields. If interest rates and so bond yields rise, bond prices tend to fall, and vice versa. The price of bonds with a longer lifetime until maturity is generally more sensitive to interest rate movements than those with a shorter lifetime to maturity. The risk of default is based on the issuers ability to make interest payments and to repay the loan at maturity. Default risk may therefore vary between government issuers as well as between different corporate issuers. Sub-investment grade bonds are considered riskier bonds. They have an increased risk of default which could affect both income and the capital value of the fund investing in them. Investments in smaller companies can carry a higher risk because their share prices may be more volatile than those of larger companies. A focus on securities of companies which maintain strong environmental, social and governance (“ESG”) credentials may result in a return that at times compares unfavourably to similar products without such focus. No representation nor warranty is made with respect to the fairness, accuracy or completeness of such credentials.