Siddle: “So far during this transition period, I have diligently reviewed every holding in the portfolio through the lenses of my investment process to ensure that they meet my ‘quality at an attractive price’ criteria. Essentially, I look for liquid stocks - businesses with robust balance sheets that achieve good margins through a strong competitive position and generate regular cash flows, which they are able to use as reserves and as funds for future expansion. A stock is only given a place in the portfolio if I am satisfied with its medium-term business prospects and if its valuation does not fully reflect its fundamentals.”
e-fundresearch: "What are the specific challenges in this transition over the next few months?"
Siddle: “While I am keen to transition the portfolio so it fully reflects my best ideas, I am patient in order to get the best price I can achieve when selling stocks, and conversely find an attractive entry point when adding new ideas. I am mindful to keep trading costs to a minimum, so do not intend to trade more than I need to. The focus of my approach is to invest in high quality companies, which should translate into a relatively low turnover, as the investment thesis for such businesses is less likely to change, except of course if they reach my price target (which would be good news for the fund). Such companies are also likely to prove resilient in volatile market conditions. It is worth noting that this does not necessarily mean investing only in defensive or stable businesses, but also in high quality companies in more cyclical sectors that can absorb an economic shock without permanently impairing their business and earnings capability.”
e-fundresearch: "Will you position the fund more on the top or bottom of the 3-5 percent target tracking error or will you also go above that mark to take advantage of opportunities?"
Siddle: “The fund’s tracking currently stands towards the bottom-end of the range I aim for – close to 3 percent. While risk management plays a major part in my portfolio construction, it is worth noting that I do not target a specific tracking error; it is simply an outcome of my investment process. I control the fund’s volatility through absolute downside analysis of each stock and thematic diversification. I aim to limit concentration risk by controlling position sizes to ensure no single stock contributes to more than 10% of the fund’s total tracking error. My focus on strong corporate fundamentals should result in lower downside risk.”
e-fundresearch: "Your strategy will most likely be more company focused and less macro- and market-driven. Which segments of the current portfolio will have to be reduced to achieve this?"
Siddle: “My overall strategy is to try and avoid as much of the macro economic ‘noise’ as possible, and focus on investing in strong, well managed companies which are highly cash generative and which can deliver high and sustainable returns. When I look at individual companies, I am finding many strong European businesses across a range of sectors at attractive valuations.”
e-fundresearch: "What is the average market cap of your fund holdings currently and what will it most likely be at the end of 2012?"
Siddle: “The average market cap of the portfolio is currently around the €52 billion mark. This is primarily an output of where I find my best ideas, although stocks’ liquidity is a consideration particularly in this uncertain environment. I do not anticipate any meaningful change in the fund’s market cap exposure over the coming six months.”
e-fundresearch: "Which targets are most important to you? Market returns and risk management in weak equity markets, relative outperformance vs. benchmarks or a top quartile position within peer-groups?"
Siddle: “My main focus is on investing in good quality companies and ensuring the fund is well diversified in terms of themes and appropriately balanced from a risk/reward perspective. I see my job as making sure that I make the most of the sizeable research resources put at my disposal by Fidelity and ensure that the analyst team’s best ideas that meet my investment criteria make it into the fund. Over time, I am confident this approach will be rewarded by superior performance.”
e-fundresearch: "Looking ahead towards the end of the year: Independent from market movements and any event, which relative position within the Lipper Equity Europe peer group ranking would be a successful starting point for 2013?"
Siddle: “Of course, a 1st quartile ranking would be a good starting point, but my primary objective is to ensure that the fund is invested in attractively valued good quality companies that generate healthy profits on a consistent basis and have a competitive advantage that is difficult for their rivals to match. I am not willing to take unreasonable risks to try to outperform my peers. I would rather make sure that the fund is well diversified and made up of companies with strong fundamentals. Over time, I am confident this approach will prove rewarding for my investors.”