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HOW I DO IT
By Dianne Maley
Globe Investor Magazine, May 8, 2009
Who: Andrew Marchese, head of Canadian equities and director of research for Fidelity Investments Canada ULC, and portfolio manager for the Fidelity Canadian Disciplined Equity Fund.
The Strategy: To deploy Fidelity's extensive research team to uncover the best stocks in all 10 major industry sectors at any given time in the business cycle.
"Fidelity is a bottom-up, stock-picking shop," Mr. Marchese says. The key is to cover the waterfront rather than favouring one industry or another.
This way, analysts spend their time uncovering the best stocks in their sector rather than scratching their heads over which is best, Imperial Oil or Shoppers Drug Mart, for example.
This "sector-neutral" approach eschews costly and tough-to-execute strategies such as sector rotation and market timing in favour of fundamental research, Mr. Marchese said in an interview.
"If you look at data on the long-term history of the stock market, sector rotation and market timing actually detract from a portfolio."
Instead, Fidelity's analysts meet with the company and its competitors, "kick the tires," and come up with a concise, bullet-point thesis about why a stock should or should not be bought. This might include a target price range and a point at which the stock would be considered too expensive and should be sold, Mr. Marchese said. "We require our investment professionals to understand what the drivers are for stock performance for the stocks they cover based on where we are in the investment or business cycle."
Which financial measures most influence this decision depend on the industry, Mr. Marchese notes. "There is no right way, no one metric."
When It Works Best: Over the long term. Shorter term, some industries may languish, weighing down the fund's performance because of its mandate to invest in all the major industry sectors. Eventually, though, the lagging industry will recover and the fund will benefit.
What Could Go Wrong: Stock markets could fall off a cliff like they did last fall and again in March, dragging almost everything down with them. Or an analyst could make a mistake in recommending a particular stock; in short, all the risks that beset any equity investment.
How Is He Doing? The fund did not escape the meltdown. It was down 33.1 per cent for the 12 months ended March 31 and flat in the first quarter. Still, it outperformed most of its peers, Mr. Marchese notes.
Longer term, the Fidelity Canadian Disciplined Equity Fund has shone, gaining 7.5 per cent over the past 10 years, compared with 6.5 per cent for the S&P/TSX Composite Index and 4.5 per cent for the median Canadian equity fund. It has gained an annual average 9.2 per cent since inception in September, 1998.
Mr. Marchese's fund was honoured at the Lipper Fund Awards on April 28, winning the top marks for the best risk-adjusted returns in the Canadian equity category over the past 10 years.
After the spectacular slide last fall, this spring's lively stock market bounce is "a reversion to the mean," Mr. Marchese opines. Future gains from this point will depend on the economy.
"The durability of the trade will really depend on the timing and magnitude of the economic recovery," he said. "We'll be keeping an eye on whether revenues start picking up in the months ahead."
Special to The Globe and Mail
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