EUROPE - Fidelity Investments is rolling out its pooled Select Global Fund across Continental Europe this year.
The fund’s 40-year-old manager, César Hernández, already runs segregated accounts in Fidelity’s Select discipline in seven European countries and has been with the firm since 1989. He says mainland clients such as medium-sized pension plans may want to use Fidelity’s already established Select European pooled fund in combination with Select Global to achieve a specific asset allocation.
He said “It’s only now we find a lot of our segregated clients want a global mandate with a different European weighting, a higher weighting.”
The Select Global Fund was launched on February 28, 2002. As a sub fund of the institutional OEIC it is currently registered in the UK and will shortly be rolled out in Holland and Switzerland, on April 8, and in France on May 13. Next on the cards is Scandinavia, then Austria, Ireland and Germany.
Hernández says the the Select discipline was developed for the US market in 1987 in response to pension funds’ dissatisfaction with the volatile performance of active managers. Because passive management by tradition offered no opportunity of outperforming, Fidelity felt there was a need for a product that would bridge the two styles, that would add value but at the same time have less exposure to the cycles of managers being in favour or out of favour.
Hernández also says that because his is not a growth or a value style, and does not introduce macro economic biases, it has a good chance of outperforming in any type of market environment.
With a bigger emphasis on risk control, Hernández says his core-active fund has exposure to all sectors and stocks and in order to provide consistency he needs to place a lot of bets, but small ones: “We diversify our bets across many names and the maximum we would ever overweight a stock would be 2%, which is fairly modest by active management standards. But still it gives us enough punch to deliver the results we have achieved in the last five or 10 years.”
The Select Global portfolio is benchmarked against the MSCI World Index and has a tracking error of 2-3% - around half that of Fidelity’s other major discipline, International Growth.
Over last 12 months the Select Global performance track record was down in line with the market, mirroring the MSCI World Index which dropped 14.3%. But over three, five and 10 years outperformance is 2.7%, 2.1% and 2% respectively.
“This is what makes it attractive to a lot of our clients,” says Hernández. “The fact that this is a strategy that even when it doesn’t do very well it’s not going to underperform by a wide margin.”
Quantitative techniques are used in a portfolio’s construction so that it closely resembles the benchmark in terms of risk factors. The approach, Hernández says, is particularly well suited to institutional investors who want to achieve consistent incremental excess returns from stock selection.
Hernández typically holds 400 stocks from a universe of about 7000 names worldwide. Fidelity’s team of over 200 analysts communicate with him using a proprietary electronic system from locations in every time zone around the globe.
Since Fidelity does not possess investment banking operations, Hernández says his analysts have greater independence and a more symmetric distribution to their ‘buy’ or ‘sell’ recommendations.
Fidelity’s analysts examine a company’s financials, balance sheet and earnings and compare it to others in its sector or similar sectors globally. They also look at the quality of management and what competitors, suppliers and customers are saying.
Hernández says: “This is why we need a large analyst team, to cover not just the company but every other company in relation to it
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