Fund in Focus: Fidelity Global Innovators Fund

Shoot-the-lights-out performance in 2019

While growth stocks have consistently rebounded from selloffs for the past few years, they will eventually give up market leadership as investors rotate away from unsustainably elevated valuations. Led by portfolio manager Mark Schmehl since inception, Fidelity Global Innovators Fund is one of the stronger performers in the Global Equity category, and carries a monthly FundGrade A grade.

Schmehl uses a slightly unconventional approach, looking for innovative companies that are undergoing some sort of fundamental change he believes will be a catalyst to unlock share price appreciation and ideally deliver above-average growth over the next 12 to 18 months. Along with traditional valuation metrics, Schmehl also plays momentum and conviction, looking to get in early on the next big trend and letting his winners to run, regardless of the valuation.

He is also a very active with portfolio turnover often well above 100%. At the end of November, the fund had 10% in Canadian equity and 88% in foreign equities, with tech the largest sector, comprising nearly 51% of assets. Surprisingly, healthcare is the next largest sector at 13%, reflecting the manager’s seeking out under-the-radar innovative activities.

Top holdings as of Sept. 30 included Apple Inc., Shopify Ltd., Elastic NV, ROKU Inc., and Bausch Health.

The fund has delivered strong albeit volatile performance since inception in November 2017, generating an average annual compounded rate of return of about 15% to Nov. 30. In the year to date ending Nov. 30, 2019, the fund returned a walloping 40.3% compared with about 32% for the Nasdaq 100 Index.

Much of this outperformance can be attributed to the fund’s active, opportunistic approach. Markets favoured that approach last year, and the fund ranked in the top quartile of performance through 2019. While the fund has delivered outsized performance, such strong returns may not keep repeating in an environment where investors start rewarding earnings quality. The fund is also volatile, even for this highly volatile category, with a 1-year standard deviation of 22% as of Nov. 30. So the fund remains a decent pick for investors with high risk tolerance who can be comfortable with volatility well above the index and peer group.

Despite its strong showing out of the starting gate, I’m concerned that the fund may struggle when we see market leadership rotate to value. For that reason, I’m reluctant to use it as a core holding, favouring it instead as part of a well-diversified portfolio. I see this fund pairing up nicely with a more value-focused offering such as Fidelity NorthStar Fund.

Fidelity Global Innovators Fund
Fund company: Fidelity Investments Canada
Fund type: Global Equity
FundGrade: A (November)
Style: Large-Cap Growth
Risk level: Medium-High
Load status: Optional
Manager: Mark Schmehl since Nov. 2017
MER: 2.30% (Front-end load)
Fund code: FID5973 (Front-end load)
Minimum investment: $500

Dave Paterson, CFA, is a money manager and an expert on investment fund research and due diligence on a variety of investment products.

Notes and Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.