FIDELITY NORTHSTAR FUND

Transcription

1 FIDELITY NORTHSTAR FUND QUARTERLY FUND REVIEW December 31, 2017

2 Fund overview Investment objective The Fund aims to achieve long-term capital growth. It invests primarily in equity securities of companies anywhere in the world. Management Fund aggregate assets (all series) FUND MANAGER EDUCATION FUND MANAGER EDUCATION ASSOCIATE FUND MANAGER EDUCATION $8.941 billion Daniel Dupont BA McGill University Joel Tillinghast, CFA MBA Kellogg School of Management, Northwestern BA Wesleyan University Connor Gordon BA Wilfrid Laurier University Management expense ratio (Series B) 2.33% as at September 30, 2017 Fund inception date October 31, 2002 Fund benchmark Morningstar overall rating 1 None 1 The Morningstar Risk Adjusted Ratings (MRARs), commonly referred to as the Star Rating, relate the risk-adjusted performance of a fund to its peers with the same CIFSC Fund category for the period ended as noted and are subject to change monthly. Morningstar calculates ratings for categories with at least 5 funds. To determine a fund s rating, the fund and its peer are ranked by their MRARs. If a fund scores in the top 10% of its category, it receives five stars; if it falls in the next 22.5%, it receives four stars; the next 35% earns a fund three stars, those in the next 22.5% received two stars; and the lowest 10% receive one star. The overall rating is a weighted combination of the 3, 5 and 10 year ratings. For greater detail see Morningstar.ca. Source: Fidelity Investments Canada ULC. 2

3 Fund performance (Series B) ANNUALIZED RETURNS AS AT DECEMBER 31, 2017 FIDELITY NORTHSTAR FUND YTD 3 MO 1 YR 2 YR 3 YR 4 YR 5 YR 7 YR 10 YR SINCE INCEPTION Fund (Net) % Fund (Gross) % MSCI All Country World Index (N) % Fund (Net) % Fund (Gross) % MSCI All Country World Index (N) % 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. Returns in Canadian Dollars. Past performance is no guarantee of future results. Performance for periods greater than one year have been annualized. Fund inception date is October 31, Returns based on Series B. Totals may not equal due to rounding. 3

4 Key market developments Global equities generated positive returns over the fourth quarter of 2017, supported by strengthening economic and corporate data across markets. The U.S. Federal Reserve raised both interest rates and its forecast for U.S. economic growth in 2018, while the European Central Bank maintained its accommodative monetary policy. Against this backdrop, Japan and emerging markets outperformed other regions after optimism about global economic growth and encouraging corporate earnings boosted sentiment. U.S. equities registered strong performance, driven by positive economic data, robust corporate earnings and the successful passage of the tax reform bill. Europe underperformed other regions as the political situation in Catalonia introduced some volatility to the market. Source: Fidelity Investments Canada ULC. 4

5 Quarterly fund performance Fidelity NorthStar Fund (Series B) returned 4.4%, net of fees, during the quarter. In comparison, the MSCI All Country World Index returned 5.9%. Key drivers No region detracted on an absolute basis. Investments in emerging markets and Japan contributed the most to total returns. Similarly, no sector detracted on an absolute basis. Holdings in the consumer discretionary and consumer staples sectors added the most value to total returns. Holdings in Seria and Hyundai Mobis added value in consumer discretionary while investments in Ottogi and USANA Health Sciences contributed in consumer staples. In other sectors, investments in Anthem and St.Shine Optical were top contributors to total returns. Holdings in Gilead Sciences, Hon Hai Precision Industry, Teva Pharmaceutical Industries, CVS Health and Bed Bath & Beyond were the notable detractors from total returns in the quarter. The Fund s larger-than-typical allocation to cash also weighed on returns as the stock market continues to trend higher. Source: Fidelity Investments Canada ULC. 5

6 One-year fund performance Fidelity NorthStar Fund (Series B) returned 4.1%, net of fees, for the one-year period. The MSCI All Country World Index, broadly representing global equities, returned 15.8% (in Canadian dollar terms). Key drivers Geographically, holdings in Asia-Pacific (ex Japan) detracted on an absolute basis. Conversely, investments in Japan and emerging markets contributed the most to absolute performance. By sector, investments in energy detracted from absolute performance. The Fund s higher-thantypical allocation to cash was a drag on performance. In energy, holdings in Unit Corporation and Atwood Oceanics were the top detractors from total returns. Other notable detractors included allocations to Bed Bath & Beyond, Teva Pharmaceutical Industries and Fossil Group. Holdings in industrials and information technology added the most to total returns. In industrials, investments in Prestige International and Graphite India were top contributors to total returns while holdings in Kingboard Chemical Holdings added value in information technology. In other industries, investments in Anthem, Seria and Ottogi were top contributors. Source: Fidelity Investments Canada ULC. 6

7 Positioning and outlook In 2017, global equity markets were led by momentum and growth-oriented stocks. In general, value stocks lagged momentum and growth. As a value investor with a strict focus on mitigating downside risk, portfolio co-manager Dan Dupont faced a challenging environment created by excessive valuations. Dan believes high-quality securities with less cyclical earnings are currently overvalued and carry substantial downside risk. This remains a key concern in Dan s decision to hold more cash. The portfolio managers believe that in the event of a market pullback, the Fund is well positioned to mitigate downside risk and should be able to capitalize on opportunities. Dan s foremost objective is to protect capital, and in light of the elevated valuation risk in the market, he remains firm in this commitment by allocating more to risk-off assets, such as cash and U.S. treasuries. He has also found select securities that fit his strict investment criteria. As U.S. equities continued to trend higher, portfolio co-manager Joel Tillinghast trimmed exposure to certain U.S. holdings where valuations had become excessive. He continues to find an abundance of Japanese securities he considers mispriced in the small- and mid-cap segments, noting their strong balance sheets, low debt levels and low price-to-earnings ratios. Source: Fidelity Investments Canada ULC. 7

8 Sector attribution 3-months ending December 31, 2017 FIDELITY NORTHSTAR FUND Sector Average Weight (%) Cumulative Return (%) Absolute Contribution (bps) Consumer Discretionary Consumer Staples Health Care Industrials Financials Energy Information Technology Materials Real Estate Utilities Telecommunication Services Total Primary Assets Cash and equivalent Currency Expenses and Other -51 Total Fund Fund Return 445 Source: Fidelity Investments Canada ULC. Returns are for Series B, net of fees, in Canadian dollars. Past performance is no guarantee of future results. Percentages may not sum to totals due to rounding. 8

9 Sector attribution 1-year ending December 31, 2017 FIDELITY NORTHSTAR FUND Sector Average Weight (%) Cumulative Return (%) Absolute Contribution (bps) Industrials Information Technology Health Care Consumer Staples Consumer Discretionary Financials Materials Utilities Real Estate Telecommunication Services Energy Total Primary Assets Cash and equivalent Currency Expenses and Other -223 Total Fund Fund Return 414 Source: Fidelity Investments Canada ULC. Returns are for Series B, net of fees, in Canadian dollars. Past performance is no guarantee of future results. Percentages may not sum to totals due to rounding. 9

10 Fidelity NorthStar Fund SECTOR ALLOCATION, AS AT DECEMBER 31, 2017 (%) FUND Consumer Discretionary 16.8 Health Care 15.3 Consumer Staples 10.7 Information Technology 9.5 Industrials 7.9 Financials 4.2 Materials 3.8 Energy 3.1 Real Estate 0.9 Utilities 0.6 Telecommunication Services 0.4 Cash/Other 26.9 TOTAL Source: Fidelity Investments Canada ULC. 10

11 Fidelity NorthStar Fund GEOGRAPHIC ALLOCATION, AS AT DECEMBER 31, 2017 Fund United States 52.5 Japan 14.5 South Korea 7.4 United Kingdom 3.7 Netherlands 3.3 France 2.7 Taiwan 2.7 Hong Kong 2.7 Australia 1.8 India 1.4 Other 7.2 Total Source: Fidelity Investments Canada ULC. 11

12 Fidelity NorthStar Fund TOP TEN HOLDINGS, AS AT DECEMBER 31, 2017 Security Industry Anthem Health Care Providers & Services Seria Co. Multiline Retail Ottogi Food Products Gilead Sciences Biotechnology Imperial Brands Tobacco Advanced Accelerator Spodr Adr Biotechnology NXP Semiconductors Semiconductors & Semiconductor Equipment Monsanto Co Chemicals Orbital Atk Aerospace And Defense Akorn Pharmaceuticals Total holdings 673 Source: Fidelity Investments Canada ULC. 12

13 Fidelity NorthStar Fund PORTFOLIO CHARACTERISTICS, AS AT DECEMBER 31, 2017 Fund P/E (1 year historical) 16.1 P/E (1 year forecast) 15.0 Price/Book 1.8 ROE (5 year average) 10.9 Earnings Growth Rate (5 year average) 9.3 Earnings Growth Rate (1 year forecast) 13.3 Dividend Yield 2.1 Weighted Average Market Cap (B) $21.8 Source: Fidelity Investments Canada ULC. 13

14 Fidelity NorthStar Fund HISTORICAL RISK MEASURES 1, 3-YEARS ENDING DECEMBER 31, 2017 Fund MSCI AC World Annualized Standard Deviation 9.32% 10.51% Sharpe Ratio Downside Volatility* 5.29% - Sortino Ratio* Annualized Tracking Error Annualized Information Ratio Beta Source: Fidelity Investments Canada ULC. Past performance is no guarantee of future results. 1 Based on gross fund returns * Hurdle rate is zero or excess return, whichever is lower 14

15 APPENDIX 15

16 Investment process Investment process Stock selection will be the key driver of performance as no adherence will be paid to any formal benchmark, reflective of the go-anywhere Fund mandate. Joel Tillinghast and Daniel Dupont retain the ability to invest in securities anywhere in the world. Portfolio risk is minimized primarily at the level of stock selection. Individual position sizes will be kept small in an effort to diversify away any significant idiosyncratic risk. In addition to interacting on an informal basis, the portfolio managers attend a formal allocation meeting on a monthly basis. In this meeting, they discuss the relative attractiveness of investment opportunities in the different regions of the world. Based on their discussions, they decide which of the two can most effectively deploy the cash flowing into the Fund during that time period. The Fund is constructed using pure fundamental bottom up stock-picking process. The portfolio managers select stocks both independently and in consultation. Beyond the top level allocation of assets to the two individual portfolio managers, regional and sector allocation are almost exclusively the result of stock selection activities. Regular discussions on portfolio holdings and investment decisions ensure that the stocks held are the most likely to exhibit characteristics consistent with the mandate of the Fund. 16

17 Investment process Daniel Dupont Process overview Bottom-up, fundamental company analysis is the primary driver of portfolio construction Employs a value oriented style by aiming to purchase stocks at significant discounts Looks for strong companies with unrealized growth potential trading at discounted prices Highly values quality management with a strong and consistent track record of effective execution Looks for stocks that will deliver high return on capital over time, with long-term sustainable businesses, that are trading at low valuation multiples Number of holdings typically between names and will typically have low turnover; position size is a function of conviction and is considered in relative terms. Assesses relative value among stocks on the basis of relative upside potential and downside risk Buys/sells purely a function of relative valuation and company fundamentals 17

18 Investment process Joel Tillinghast Process overview Because of his focus on discounted valuations relative to intrinsic value, most investment theses on the companies in which he invests tend to take time to play out. Valuations assessment is focused on the balance sheet and income statement. Joel Tillinghast aims to seek out companies with little or no debt and primarily tangible assets. He also looks for companies that are growing faster than their peers. His evaluation process involves testing for quality of earnings, consistency of earnings, and stability of revenue. The ability of management to execute successfully on sound strategy is a key consideration in assessing the value of a company as well. Key factors that are considered in the valuation process include: Discounted valuations Management quality Low debt-to-equity ratios High margin businesses Niche products/services and market leadership with strong evidence of a sustainable competitive advantage High levels of free cash flow Business models that target repeat or habitual purchases or that are based on repeatable feegenerating activities 18

19 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 Morningstar Research Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or redistributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results 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. 19