The only certainty is that volatility will continue

Amit Lodha

Fidelity International

Global equities have been volatile over the last financial year. The period has been a tale of two halves, marked by strong market performance during the first six-month period, supported by major central banks’ accommodative policies. However, markets fell sharply in the first quarter of 2020 as the outbreak of the COVID-19 pandemic weighed on global economic prospects. 

Authorities across the world announced large-scale lockdowns and travel restrictions to curtail the contagion, and unveiled policy stimulus measures to mitigate its economic impact. Towards the end of this period, markets rebounded as progress on a potential COVID-19 vaccine, easing of lockdowns in several economies and substantial stimulus measures provided support. 

The global pandemic crisis is now entering a new phase as economies start to gradually re-open from the lockdowns that were imposed in April and May. 

The nascent signs of economic recovery, albeit from very depressed levels, has boosted investor sentiment recently.

Nonetheless, the high unemployment, weakening strength of US consumer and second wave of infections remain key threats that will negatively impact growth estimates for many companies. Revenue growth, operating leverage and financial leverage (increased cost of recent debt issuance for many corporates) suggest that earnings expectations still have significant downside. 

Given the global spread of COVID-19, the difference in government response and the political nature of lockdown decisions, we think duration of this pandemic is incredibly difficult to model from a top-down perspective. The only certainty is that volatility will continue in the short to medium term. In this environment, markets are offering pockets of good value and I continue to deploy cash in high-quality names that are available at attractive valuations when taking a longer-term view. I remain committed to a bottom-up stock-picking approach with a focus on strong corporate fundamentals and management teams, while regularly re-evaluating the investment thesis of stock picks. 

Our global equities portfolio is well diversified across a range of industries and sectors, with regional and sectoral positioning an outcome of where we are finding opportunities. 

We remain invested in high-quality franchises and undervalued managers in health care, financials and information technology sectors. Some of these health care and tech names have continued to do well and maintained market leadership as investors preferred their strong moats, best-in-class management teams and growing addressable markets. 

A combination of luck and skill has ensured that we were overweight several stocks and sectors which perform strongly under lockdown measures or in periods of heightened volatility.  

Going forward, impacts of ‘war time’ government stimulus packages and central bank balance sheet expansion on the case for inflation versus deflation will be of paramount concern. This ‘regime shift’ will have implications for the investment case in US versus the rest of the world, value versus growth, Europe versus the US, and developed markets versus emerging markets. 

Investors and asset allocators will need to maintain a flexible mindset to successfully navigate these changing times. The old saying, ‘Past performance is no guide to future performance’, has probably never been truer. With all the seminal changes in the world around us, it’s highly probable that the winners of the next ten years will be very different from those of the past ten.

Access Fidelity's Year in Review

The article above is an extract from Fidelity's Year in Review, where our Investment teams look back at one of the most volatile periods in our history and what this has meant for markets. You can access the full report here

Amit Lodha
Portfolio Manager, Global Equities
Fidelity International

Amit Lodha has been Portfolio Manager of the Fidelity Global Equities Fund since 2010 and has over 16 years of investment experience. He is a qualified accountant from the Institute of Chartered Accountants (India) and a CFA charterholder.

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