Performance Review 2006
The fund was not managed by the current fund manager during this period.
Performance Review 2007
The fund was not managed by the current fund manager during this period.
Performance Review 2008
Nicola Stafford: "I took over the management of the fund on 1st January 2008, which coincided with a period of plummeting consumer confidence, as employment and personal incomes were under considerable pressure. The turmoil in the financial sector was felt throughout the world economy with significant declines in industrial production and rapidly worsening employment. This caused global equity markets to drop sharply and volatility to reach extreme levels. Nonetheless, during the first year of my tenure, I steered the fund towards a relative outperformance compared to its benchmark, the MSCI All Countries World Consumer Discretionary + Staples Index. My decision to remain cautious towards automobile & auto-component businesses proved rewarding, as the profitability of leading Japanese firms was compromised, while cash-strapped US car manufacturers nearly went bankrupt. I focused on firms that grew their sales and maintained profitability in a recessionary environment lifted returns. These included beer producers Molson Coors Brewing and Anheuser-Busch InBev, which reported strong quarterly results and aided performance. An overweight holding in the education provider Nord Anglia was a leading contributor. Its shares rose sharply after the firm rejected a takeover bid, made at a premium, as an undervalued offer. However, a lack of exposure to McDonald’s and a below-benchmark position in Wal-Mart somewhat dampened relative performance as investors preferred staples businesses in an uncertain backdrop. Returns were held back by exposure to casino operator Kangwon Land, whose shares fell after the Korean government surprised investors by announcing its intentions to limit the total annual revenues generated by the gambling industry."
Performance Review 2009
Nicola Stafford: "2009 saw investors willingly assume a higher level of risk, particularly in the latter half of the year, as economic data pointing towards a recovery in global growth generated optimism. Encouraging corporate earnings releases also aided sentiment and bolstered investor confidence. During this year, the fund posted robust absolute returns and outperformed its benchmark, the MSCI All Countries World Consumer Discretionary + Staples Index. This feel-good sentiment proved beneficial for the fund’s positions in the hotels and hospitality segment, as investors expected travel to resume and demand to pick up. The top contributor to performance during this period was an overweight position in hotel operator Wyndham Worldwide. The firm upgraded its 2009 revenue estimates amid signs of stabilisation in demand, while its CEO revealed that the firm was seeking opportunities to expand through acquisitions of distressed properties. Meanwhile, investors viewed Annheuser-Busch InBev’s efforts to strengthen its balance sheet favourably, as the leading brewer reduced capital expenditure and planned asset sales to lower its outstanding debt. The Brazilian drugstore operator Drogasil and sportswear retailer JD Sports Fashion were also among key contributors to performance, as encouraging quarterly earnings drove their share price higher. In contrast, an underweight stance towards automobiles & components manufacturers hurt relative returns, as investors rotated into early cyclical sectors."
Performance Review 2010
Nicola Stafford: "The fund posted healthy absolute returns during 2010, but lagged the performance of its benchmark, the MSCI All Countries World Consumer Discretionary + Staples Index. During the year, investors were initially concerned about an extended recession, but later became optimistic after policymakers, particularly the US Federal Reserve announced a second round of stimulus support to underpin economic growth. Continued momentum in takeover activity also provided investors with some succour. During this period, the fund was overweight BMW, whose CFO revealed that demand was holding up much better than expected aided by strong Chinese sales. BMW was also increasing it localisation in China and its 5-series models continued to generate strong interest. Positions in companies exposed to a recovering corporate spending environment contributed to performance. These included online jobs portal Monster Worldwide, which registered healthy third-quarter bookings and found favour with investors supporting the thesis that an inflection in job growth was around the corner. Media firms also benefited from renewed corporate spending behind brands and advertising. Marketing and communications firm MDC Partners held in the fund benefited from an increase in advertising spend, and showed a healthy pace of customer acquisition. Being overweight in our exposure to Viad Corporation, a service provider to exhibitors also proved rewarding, as its third quarter results signalled a trough in the trade show business. However, exposure to the Nordic yellow pages producer Eniro detracted in light of a profit warning and a disappointing corporate restructuring announcement. Furthermore, expectations of stricter European regulations exerted pressure on shares in online gaming businesses 888 and PartyGaming, which the fund owned."
Performance 2011 - Year-to-Date
Nicola Stafford: "During the eight months to August 2011, a series of unexpected events dampened investor sentiment. These included a rising wave of socio-political unrest in the Middle East and North Africa and a destructive earthquake and tsunami in Japan. In addition, the sovereign debt crisis in the eurozone assumed a larger proportion than previously anticipated. S&P’s downgrade of the US credit rating from AAA to AA+ fuelled this nervousness and prompted an indiscriminate sell-off in equities. Against this backdrop, the fund underperformed its benchmark, the MSCI All Countries World Consumer Discretionary + Staples Index in the period January –August 2011. As investors became more and more concerned about a global recession, stock selection in media businesses held back returns amid worries that both consumers and businesses would rein in spending. Exposure to Huabao International detracted after its management lowered growth expectations for its tobacco flavouring business, as the Chinese government slowed down the pace of consolidation in the tobacco industry. On a positive note, conviction in Start Today added value, as investors viewed its prospects in positive light. The firm, a leading online apparel retailer in Japan, has tie ups with major brands and has a growing base of active users, which has attracted more brands to sign up at premium pricing. Exposure to Hyundai Motors, a beneficiary of resurgent automobile demand in the US, supported performance. The Korean car manufacturer reported solid quarterly earnings, as it launched new models to increase its share of the US market."
Performance since 2006
Nicola Stafford: "During my tenure as the portfolio manager of FF Global Consumer Industries fund, i.e. the period January 2008 – August 2011, the fund has posted encouraging absolute returns and outperformed its benchmark, the MSCI All Countries World Consumer Discretionary + Staples Index."
Investment Process and Strategy – How does the Fund Manager invest?
The FF Global Consumer Industries Fund is a portfolio driven by a theme-based stock selection process. The focus of my stock selection is to zero-in on companies with under-appreciated fundamentals, trading at attractive valuations. Given the global nature of this product, I can easily leverage valuation opportunities to my advantage to build a portfolio I have conviction in. In this process, I am supported by Fidelity’s wide base of on-the-ground regional research analysts that allows us to dig deeper into a stock’s fundamentals, talk to its competitors, suppliers and customers to deliver returns and, hopefully, recognise growth opportunities ahead of the market. The fund is not managed from a top-down (macroeconomic) perspective; instead sector/country/regional positioning is an aggregate of the individual stock selection. Currently, the key themes that form the backbone of the fund are:
- Pockets of unsustainably low demand: These include cyclically depressed end markets, where demand is considerably below replacement levels. For instance: the US automobile demand is recovering from particularly low levels reached during the recession in 2008, which is supportive of a longer term pick up in domestic car sales.
- Structural growth businesses
- In end-markets: These positions are beneficiaries of changing demographic trends and the consequent shift in consumer behaviour, such as a expanding middle class in emerging markets driving demand for higher quality food products, or a rising ageing population in the West that drives demand for medical products such as hearing aids, orthopaedic products etc.
- Expansion through disruptive technology: These are largely on-line concepts winning customers from more traditional industries, such as online apparel retailers, online bookstores etc.
- Market share gainers: These are investment opportunities in medium-sized companies with appealing products and room to grow domestically and/or internationally
- Supply-constrained industries: These companies operate in high-growth end markets with high barriers to entry and have a unique product offering.
- Misunderstood businesses: This category includes looking at firms where the market does not have a clear understanding of the business models, and therefore, does not value its total potential. Such businesses are often composed of multi-segments not necessarily experiencing uniform growth rates. In addition, stocks that are sold off due to an overreaction to short-term news flow, yet the business model is intact fall under this category.
Investment Outlook
Nicola Stafford: "It is pragmatic to acknowledge at the outset that the current backdrop is challenging for consumer-driven businesses. In particular, consumer confidence is subdued in the developed world, given the high levels of unemployment and the ongoing de-leveraging of personal balance sheets. Going forward, I expect consumers in the West to remain cautious, and overall personal consumption levels could remain lacklustre in the near to medium term. In Europe, the sovereign debt crisis has not only prompted a host of austerity measures, but has also led to worries about a potential recession, which is not conducive for spending. Having said that, all businesses are not affected to the same extent. We are currently seeing the continuation of an interesting barbell consumption pattern, where both, the high end/ premium consumption and the low-end/ trade-down consumption continue to grow, while the middle of the range is being squeezed. Meanwhile, the corporate sector remains cash rich, which is supportive of takeover activity. We are also witnessing healthy consumption levels in emerging markets, notwithstanding the uptrend in inflationary pressures in these economies. Therefore, despite the seemingly less-inspiring near-term environment, the broad spectrum of consumer industries continues to offer plenty of investment ideas, and the global nature of the fund gives me considerable leeway to tap valuation opportunities and disparities around the world."
