Fidelity Global Special Situations
Despite Fidelity Global Special Situations' poor recent performance, we believe it holds promise for the right investor.
That said, we believe there is reason to look beyond the large short-term loss. First, Korhonen's process is in keeping with the fund's successful heritage before it was split off from Fidelity Special Situations. Like Anthony Bolton before him, Korhonen looks for companies that he believes show unrecognised value. To identify opportunities and avoid value traps, he pours over the analysis produced by Fidelity’s analyst staff to determine, for example, an industry’s supply and demand drivers. He also takes great care in formulating his view on a company's value before jumping in--he conducts in-depth scenario analysis on prospective stocks by looking at the assumptions made in a company’s current share price. He will then model best and worse case scenarios to build up a risk reward picture to determine the level of investment with which he is comfortable.
We also derive comfort from the fact that Korhonen is an experienced analyst, and has had success managing single country funds and global portfolios (albeit over relatively short periods) in the past. Our own conversation with him left us impressed with his rigour, and as a global manager, he is backstopped by an analyst staff whose breadth and depth we believe is among the best in the industry. Korhonen has also acknowledged the lessons he has learnt. He is not making major changes to his strategy (it would concerns us if he was) but he is reducing stock-specific risk in current markets by spreading his holdings more widely.
Despite that nod to moderation, the fund is not for everyone. Korhonen’s main concern is with absolute returns. As such he pays little attention to the index. This approach, combined with his contrarian tendencies, means that at times the fund will differ markedly from its peers in the Morningstar Global Large-Cap Blend category, both in terms of portfolio positions and performance.
We're not happy with the recent losses here, but we can see how Korhonen's process led him into these names, and we think the conviction he shows in his process and picks is essential for a special situations manager. It is still early days for the new manager and investors should expect short-term volatility and periods of underperformance from a fund which clearly sits at the upper end of the risk spectrum. However, over the long term we believe that Korhonen, backed by Fidelity's research, has the ability to outperform.
