FIDELITY CANADIAN DISCIPLINED EQUITY FUND

Transcription

1 FIDELITY CANADIAN DISCIPLINED EQUITY FUND QUARTERLY FUND REVIEW June 30, 2018

2 Fund overview Investment objective The Fund aims to achieve long term capital growth by investing primarily in Canadian equity securities. Fund inception date September 30, 1998 Fund benchmark 1 S&P/TSX Capped Composite Index 1 Prior to April 30, 2002, the benchmark was a blend of the TSE 300 Index and the TSE 300 Capped Index. Prior to May 1, 2000, the Fund s benchmark was the TSE 300 Index. Source: Fidelity Investments Canada ULC. 2

3 Management PORTFOLIO MANAGER Andrew Marchese EDUCATION MBA Richard Ivey School of Business at the University of Western Ontario BSc University of Toronto FIDELITY CANADA ASSET MANAGEMENT (FCAM) Andrew Marchese Chief Investment Officer and Portfolio Manager (Joined Fidelity in 1998) Elizabeth Chow Analyst: Consumer Staples, Utilities (Joined Fidelity in 2007) David Way Analyst: Telecommunication Services, Consumer Discretionary (Joined Fidelity in 2008) Chris Maludzinski Analyst: Real Estate, Insurance (Joined Fidelity in 2008) Brett Dley Analyst: Information Technology (Software) (Joined Fidelity in 2008) Thomas Goldthorpe Analyst: Consumer Discretionary (Home Builders/Durables, Office) (Joined Fidelity in 2011) Jason Senensky Analyst: Industrials (Joined Fidelity in 2011) Reetu Kumra Analyst: Energy (Pipelines, Oil & Gas Drillers and Services, Integrated Oil & Gas) (Joined Fidelity in 2012) Nicolas Bellemare Analyst: Energy (Oil & Gas Exploration and Production) (Joined Fidelity in 2012) Max Adelson Analyst: Banks and Diversified Financials (Joined Fidelity in 2012) Payton Liske Analyst: Health Care (Devices, Equipment & Services) (Joined Fidelity in 2013) Alex Mahoney Analyst: Materials (Gold and Precious Metals) (Joined Fidelity in 2016) Brendan Cochrane Analyst: Materials (Ex-Gold and Precious Metals) (Joined Fidelity in 2017) Source: Fidelity Investments Canada ULC. 3

4 Fund performance (Series B) Annualized returns as at June 30, 2018 YTD 3 MO 1 YR 2 YR 3 YR 4 YR 5 YR 7 YR 10 YR SINCE INCEPTION Fund (Net) % Fund (Gross) % Benchmark % Calendar year returns (%) Fund (Net) % Fund (Gross) % Benchmark % Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus, which contains detailed investment information, before investing. The indicated rates of return are historical annual compounded total returns for the period indicated including changes in unit value and reinvestment distributions. The indicated rates of return do not take into account sales, redemption, distribution or option charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer and are not guaranteed or insured. Their values change frequently. Past performance may not be repeated. Source: Fidelity Investments Canada ULC. Benchmark: S&P/TSX Capped Composite Index. 4

5 Key market developments Canadian equities registered positive results during the quarter with ten of the 11 GICS sectors generating positive returns. Energy, health care and information technology posted strong performance, while utilities posted negative returns. The Bank of Canada held interest rates steady at both its April and May meetings. However, it noted that higher interest rates will be needed to keep inflation in line with its target, which is 1 3%. The Canadian dollar weakened against the U.S. dollar as concerns about trade negotiations weighed on the currency. Source: Fidelity Investments Canada ULC. 5

6 Quarterly fund performance Fidelity Canadian Disciplined Equity Fund (Series B) returned 7.2% during the quarter, outperforming its benchmark, the S&P/TSX Capped Composite Index, which returned 6.8%. Key drivers The Fund s investments in the financials and consumer discretionary sectors contributed the most to relative performance. In financials, lack of exposure to Bank of Nova Scotia, Manulife Financial and Canadian Imperial Bank of Commerce added to performance. An investment in Canada Goose Holdings was the main contributor in consumer discretionary. Other contributors during the period included investments in Badger Daylighting and Suncor Energy. Holdings in the energy and materials sectors detracted. In energy, an investment in an oil and gas drilling company and lower-than-benchmark exposure to Enbridge hurt relative performance. Lack of exposure to Nutrien and investments in Randgold Resources detracted in materials. In other sectors, lack of exposure to Valeant Pharmaceuticals and Bombardier weighed on relative returns. Source: Fidelity Investments Canada ULC. 6

7 One-year fund performance Fidelity Canadian Disciplined Equity Fund (Series B) returned 8.1%, underperforming its benchmark, the S&P/TSX Capped Composite Index, which returned 10.4%. Gross of fees, however, the Fund outperformed. Key drivers The Fund s investments in the materials and energy sectors were the largest detractors from relative performance. In materials, a position in Ivanhoe Mines was the main detractor. Investments in Enbridge and Cenovus Energy hurt performance in the energy sector. In other sectors, investments in GGP, Brookfield Property Partners and Thomson Reuters weighed on relative performance. Investments in the financials sector made the primary contribution to relative returns. Lack of exposure to Bank of Nova Scotia and investments in S&P Global and CME Group added value in financials. Other main contributors during the period included positions in Canada Goose Holdings, Suncor Energy and First Quantum Minerals. Source: Fidelity Investments Canada ULC. 7

8 Positioning and outlook At the end of the quarter, the financials sector accounted for the Fund s largest sector exposure as a result of the index composition. Though the Fund is underweight to banks, top holdings included Royal Bank of Canada and Toronto-Dominion Bank, which were favoured for their robust balance sheets and leadership in the banking group. The energy sector also represented a significant absolute exposure for the Fund. Top holdings included TransCanada, a pipeline company with defensive fundamentals, and Suncor Energy, a leading integrated oil and gas company believed to exhibit strong business fundamentals. Lead portfolio manager Andrew Marchese continues to believe that the Canadian and U.S. economies are in the late phase of the economic cycle. He observes that earnings growth remains strong. When looking ahead to 2019, however, Andrew thinks earnings expectations will be revised lower because the market s current expectations may be elevated. Andrew and the investment team have positioned the Fund more defensively with an emphasis on mitigating downside risk with higher-quality companies that have durable earnings and less cyclicality. Andrew is positive on equity markets over the long term but is carefully monitoring the landscape for negative earnings revisions. Source: Fidelity Investments Canada ULC. 8

9 Sector attribution 3-months ending June 30, 2018 Sector Average Weight (%) Cumulative Return (%) Contribution to Relative Return (bps) Fund Benchmark Relative Fund Benchmark Relative Security Selection Sector Selection Total Relative Contribution Financials Consumer Discretionary Telecommunication Services Industrials Information Technology Utilities Health Care Consumer Staples Materials Energy Total Primary Assets Cash & Other Investments Expenses & Other -58 Total Fund Fund Return 723 Benchmark 677 Value Added 46 Benchmark: S&P/TSX Capped Composite Index. Source: Fidelity Investments Canada ULC. 9

10 Sector attribution 1-year ending June 30, 2018 Sector Average Weight (%) Cumulative Return (%) Contribution to Relative Return (bps) Fund Benchmark Relative Fund Benchmark Relative Security Selection Sector Selection Total Relative Contribution Financials Information Technology Consumer Discretionary Telecommunication Services Utilities Health Care Industrials Consumer Staples Energy Materials Total Primary Assets Cash & Other Investments Expenses & Other -238 Total Fund Fund Return 814 Benchmark 1041 Value Added -227 Benchmark: S&P/TSX Capped Composite Index. Source: Fidelity Investments Canada ULC. 10

11 Fidelity Canadian Disciplined Equity Fund Top ten holdings, as at June 30, 2018 SECURITY Toronto-Dominion Bank Royal Bank Of Canada Suncor Energy Canadian National Railway Canadian Natural Resources Brookfield Asset Management TransCanada Rogers Communication Enbridge Thomson Reuters INDUSTRY Banks Banks Oil, Gas & Consumable Fuels Road & Rail Oil, Gas & Consumable Fuels Capital Markets Oil, Gas & Consumable Fuels Wireless Telecommunication Services Oil, Gas & Consumable Fuels Capital Markets Total holdings 68 Source: Fidelity Investments Canada ULC. 11

12 Fidelity Canadian Disciplined Equity Fund Portfolio characteristics, as at June 30, 2018 FUND BENCHMARK P/E (1 year historical) P/E (1 year forecast) Price/Book ROE (5 year average) Earnings Growth Rate (5 year average) Earnings Growth Rate (1 year forecast) Dividend Yield Weighted Average Market Cap (B) $52.2 $47.8 Source: Fidelity Investments Canada ULC. Benchmark: S&P/TSX Capped Composite Index. Weighted average market cap in Canadian dollars. 12

13 Fidelity Canadian Disciplined Equity Fund Historical risk measures 1, 3-years ending June 30, 2018 FUND BENCHMARK Annualized Standard Deviation 6.40% 7.19% Sharpe Ratio Downside Volatility** 1.94% - Annualized Tracking Error Annualized Information Ratio Beta Source: Fidelity Investments Canada ULC. Benchmark: S&P/TSX Capped Composite Index. 1 Based on gross fund returns * Hurdle rate is zero or excess return, whichever is lower. 13

14 APPENDIX

15 Investment process Fidelity Canadian Disciplined Equity Fund is managed by Andrew Marchese. While the investments within each sector are largely determined by the Research Analysts, the Portfolio Manager provides guidance and mentoring to the Analysts. In this role he looks to challenge the positioning of the Analysts investments, the thesis and the individual stocks selected. He also ensures that their investments are appropriately concentrated in their best ideas. While the style adopts index-like sector weights, the style differs immensely from that of an index product. The portfolio takes meaningful overweights and underweights, relative to the benchmark index, at the security level. The tremendous breadth and depth of Team Canada affords it the opportunity to scour the entire universe of TSX listed companies for attractive investments. Fundamental Research Analysts within Team Canada are assigned sectors or sub-sectors of the S&P/TSX Composite Index. The Analysts are responsible for the industry and security coverage within these assignments. Through building their own coverage database, attending conferences and meeting with companies, the Analysts become experts in their areas of assignment. 15

16 Investment process Fundamental research the key building block Within each sector of the market, the internal research and analysis effort begins with top-level analysis of the sector constituents. This top-level analysis identifies potential opportunities by examining stocks for signs of earnings acceleration, technical breakouts, increasing margins or overly depressed valuations. The preliminary review helps to narrow the field of opportunity to a number that will facilitate the ensuing detailed investment review. The analysis of trends outside Canada represents an additional source of investment ideas. Management interviews The bottom up research process consists of a continuous analysis of company and industry fundamentals. A critical step in the bottom up process is company interviews. Interviews are conducted with CEOs and CFOs, but also include several other company employees including division heads, Chief Technology Officers and marketing representatives. Management meetings are used to assess management strength, their business plan and to question issues that were uncovered in the initial analysis. At this stage of the process, company financial models begin to take shape. Company management is asked for its input on these models. These models vary from sector-to-sector and company-to-company depending on the methodology that the Analyst feels best captures the company s true value. 16

17 Investment process Fundamental research taken a step further Next, the research process focuses on competitor, supplier and customer interviews. These interviews are used to verify management s assessment of the company s prospects. Trade shows and other industry events represent an additional source of information. Outside consultants are regularly contracted (like researchers, doctors or accountants) as further sources of unbiased information. A rich source of industry information is the legacy in-house knowledge. This knowledge comes from Analysts who formerly covered the sector as well as from portfolio managers. Painting a picture The next challenge for the Research Analyst is to take the individual pieces of the research mosaic and to formulate a clear picture. To help bring the picture into focus, the Analyst establishes an investment thesis. The thesis states the Analyst s expectations as to what the future will hold for the sector and its sub sectors or industry groups. The thesis is not a top down view based on macro economic guesswork. Rather, the thesis is based on bottom up, fundamental research. While part of the analysis reviews historical trends and environments, the most important component of this research is company management interviews. 17

18 Important notice For advisor use only. No recipient is authorized to pass this communication on to any other person whatsoever or reproduce it by any means without the prior written consent of Fidelity. Read a fund s prospectus before investing. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. Investors will pay management fees and expenses, may pay commissions or trailing commissions, and may experience a gain or loss. It is not possible to invest directly in an Index. The indicated rates of return are the historical annual compounded total returns including changes in unit value and the reinvestment of all distributions and do not take into account sales, redemption, distribution, optional charges or income taxes payable by any security holder that would have reduced returns. Effective November 6, 2006 Fidelity introduced a 5% T-SWP and created Series T5 ( DSC, LL, LL2 ) and S5 ( ISC ). The Series name for T-SWP 8% changed to T8 ( DSC, LL, LL2 ) and S8 ( ISC ). Compound growth calculations are used only for the purpose of illustrating the effects of compound growth and are not intended to reflect future values of any mutual fund or returns on investment in any mutual fund. Any reference to a company is for illustrative purposes only; it is not a recommendation to buy or sell nor is it necessarily an indication of how the portfolio of any Fidelity Fund is invested. The breakdown of fund investments is presented to illustrate the way in which a fund may invest, and may not be representative of a fund s current or future investments Fidelity Investments Canada. All rights reserved. Fidelity Investments is a registered trademark of Fidelity Investments Canada. Do not reproduce any part of this presentation without permission. The presenter is not registered with any securities commission and therefore cannot provide advice regarding securities.

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