Performance Review 2007
ISIN: LU0048584766Mario Frontini: "For 2007, the stock selection within energy and consumer durables detracted performance. A relatively low exposure to the energy sector, in particular ENI, found unfavourable as the industry was supported by rising crude oil prices.
On a positive note, a significant underweight in banks proved to be the largest sector contributor amid continued concerns that a credit crisis could spread. Overweight exposure to utility companies contributed strongly, as shares rose amid merger speculation and sector consolidation. In addition, an overweight stance in capital goods gained."
Performance Review 2008
Mario Frontini managed the fund from January to September 2008. Alberto Chiandetti assumed management of the fund as at 1 October 2008: "For the period of 2008, the stock selection in utilities hurt returns, whist a significant underweight stance in banks proved favourable.
Holdings in the utilities sector pulled back performance as the market gave way to concerns over governance, regulatory risks and that the credit crisis would hurt financing of new projects. Additionally, a structural underweight in integrated oil company ENI was the largest detractor as SICAV rules disallow a fund from holding more than 10% in a single stock.
The banking sector endured an extremely volatile period in September following issues in several US and European banks. Below-benchmark holdings in banks boosted relative returns as capital adequacy fears plagued the sector. Elsewhere, a lack of exposure to Telecom Italia also aided relative returns given the stock’s disappointing performance due to high debt constraints."
Performance Review 2009
Alberto Chiandetti: "Throughout 2009, the fund significantly outperformed the benchmark under the new management of Alberto Chiandetti. Performance was largely driven by a significant overweight position in diversified financials. An underweight stance in banks also contributed to relative returns along with stock picking within the healthcare and utilities sectors. A below benchmark holding in Enel proved beneficial. Elsewhere, a position in the food & beverage sector also buoyed relative returns.
Conversely, lack of exposure to the energy, automobiles and media sectors detracted returns. The below-benchmark stance in energy equipment and services firm Tenaris hurt relative performance after its share price rose on economic optimism and a rebound in oil prices. An underweight holding in Fiat also hurt relative returns. No exposure to communications and broadcasting group Mediaset hampered performance, as its share prices rallied following positive third-quarter results and the completion of its acquisition of a Spanish TV operator."
Performance Review 2010
Alberto Chiandetti: "In 2010, the fund significantly outperformed the benchmark due to strong stock selection in consumer durables and diversified financials. Underweight stances in the utilities and telecommunication sectors detracted from relative performance.
Positions in consumer durables companies were the largest contributors to returns. Exposure to Exor, a holding company with a large stake in Fiat, contributed to performance as it looked to expand and diversify its investment portfolio. Shares rose further after investors reacted positively to Fiat’s potential spin-off of its industrials division.
In contrast, a few underweight positions held back returns. Not holding Telecom Italia hurt relative returns as the telecommunications sector benefited from strong results and merger talks. The fund’s below-benchmark position in Fiat partially offset strong returns from Exor. A large drag on performance came from the underweight position in energy firm Tenaris."
Performance Review 2011
Alberto Chiandetti: "The fund continued to outperform the benchmark in 2011 due to select underweight positions in financials and an overweight stance in energy. Positions in energy companies proved to be favourable to performance as shares in Saipem, a construction and engineering provider for the oil & gas industry, were buoyed by higher orders. Elsewhere, not holding engineering giant Finmeccanica helped returns due to disappointing second-quarter results, which was the largest relative contributor at the stock level.
Conversely, underweight stances in the utilities and telecommunication sectors detracted from relative performance. A below-benchmark position in electric utility firm Enel also proved unfavourable as general risk aversion led to defensive stocks outperforming."
Performance since 2007
Mario Frontini managed the fund from 1 January 2007 to 31 September 2008. Alberto Chiandetti assumed management of the fund as at 1 October 2008: "Over the five-year period, the fund outperformed the benchmark significantly by 8.30% on a cumulative basis. Strong stock selection in industrials and financial proved favourable, whilst lack of exposure in the energy sector held back performance along with select holdings in the utilities sector.
Performance was driven by an overweight position in diversified financials. Underweights in banks helped relative performance as banks were plagued by fears regarding their capital adequacy and concerns about the debt crisis. Exposure to Exor, a holding company with the largest stake in Fiat, contributed to performance as it looked to expand and diversify its investment portfolio and signed a private equity partnership with other fund houses in the second quarter of 2010.
Conversely, underweight positions in energy firms, particularly ENI and Tenaris, detracted as they benefited from a rise in oil prices over the year in 2009. As general risk aversion led to defensive stocks outperforming, underweight stances in utilities such as Enel hurt relative returns in 2010."
Investment Process and Strategy – How does the Fund Manager invest?
Alberto Chiandetti, the manager of the Fidelity Italy Fund, has a general contrarian attitude. He does not have a bias towards or against a specific industry. He finds it effective to divide ideas among three categories: GARP (Growth at a Reasonable Price), restructuring, and cyclicals. For GARP stocks, Alberto Chiandetti’s focus lies in understanding the persistency of a company, such as its ability to keep on growing earnings through time. In analysing restructuring stories, the fund manager pays close attention to the potential for change in earnings trajectories and is driven by a change in how a company is managed, financed, or how the competitive environment within a sector changes through time. With cyclicals, the edge is to get the right "cross cycle" earnings. Varying market conditions permit a different allocation of the portfolio’s assets among these categories. However, one thing remains constant – Alberto Chiandetti always looks to identify ’change’ that the market fails to notice or appreciate and then invest where conviction is strongest.
Since the end of summer 2011, the peripheral crisis quickly turned into a Euro crisis. As the true epicentre of the crisis lies in Europe, markets are pushing European Institutions to either get to a stronger fiscal unification and coordination or raise a white flag in accepting a potential end to the Euro exercise. Alberto Chiandetti’s 2012 outlook depends on how this situation unfolds.
In the meantime, the accelerating credit crunch among the financial institutions in Europe has already set the scene for a recession. 4Q will report negative GDP growth in the periphery while potentially already factoring in core Europe’s current state. Thus, we have quickly moved from considering how to avoid a mild recession to start pondering between a guaranteed recession and an even worse outcome. The European credit crunch is already spilling over to world trade financing as many European banks are now constrained for liquidity reasons.
Alberto Chiandetti’s outlook for 2012 is binary and depends heavily on the European institutions making the right choices to stop the crisis. If successful, these would achieve big and quick steps toward fiscal integration in Europe, coupled with the umbrella financing for peripheral government from the ECB or IMF. The latter would provide peripheral countries with 2-3 years in achieving their fiscal consolidation as the anticipated result should therefore stop market contagion. The failure to achieve this would potentially lead to the Euro break up, which ultimately would bring world GDP to a sharp slowdown.
Given the structural headwinds related to the ongoing European sovereign debt crisis, Chiandetti continues to favour a more defensive stance through my barbell approach with strong underweights in banks and utilities based on their domestic exposure. To balance this, the fund manager is increasing his exposure to industrials, such as Prysmian and Fiat Group through Exor, along with holdings in energy firms like Saipem and Tenaris. In terms of style, Chiandetti is skewing towards GARP (Growth at a Reasonable Price) stocks, such as Saipem, while he thinks more opportunities could arise in due time for restructuring and cyclicals names.