Going global in challenging times
Why investors are keeping a broader view
Despite the significant headwinds this year, global equity funds have still seen positive net sales over the last 12 months .
In a challenging economic environment, where recession concerns, geopolitical tensions and rising inflation are front of investors’ minds, many are seeing the appeal of accessing the broadest opportunity set possible to generate alpha and navigate risk. In this feature, we look at the potential that is offered by global equities, the particular stabilising benefits of dividend investing in these inflationary market conditions, and why sustainability is still a valuable lens to adopt for enhancing investment returns. We’ll also learn more about Fidelity’s two Sustainable Global Equity funds.
Important information This information is for investment professionals only and should not be relied upon by private investors. The value of investments and the income from them can go down as well as up and you may not get back the amount invested. Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be interpreted as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Changes in currency exchange rates may affect the value of an investment in overseas markets. Investments in emerging markets can be more volatile than other more developed markets. The Fidelity Sustainable Global Equity and Fidelity Sustainable Global Equity Income Funds have the potential of having high volatility either due to their composition or portfolio management techniques. They can also use financial derivatives for investment purposes, which may expose them to a higher degree of risk and can cause investments to experience larger than average price fluctuations. A focus on securities of companies which maintain strong environmental, social and governance (“ESG”) credentials may result in a return that at times compares unfavourably to similar products without such focus. No representation nor warranty is made with respect to the fairness, accuracy or completeness of such credentials. The status of a security’s ESG credentials can change over time. Investments should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document (Key Information Document for Investment Trusts), current annual and semi-annual reports free of charge on request by calling 0800 368 1732. Issued by FIL Pensions Management, authorised and regulated by the Financial Conduct Authority and Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0922/379963/SSO/NA
The case for a global approach
1) Source: Broadridge FundFile as of 31.07.22. Cross-border sold fund only. Excludes fund-of-funds and alternatives.
1
Case studies: Three global stocks to watch
Navigating the inflation puzzle through equity income
Growing pains: Why sustainable investing is here to stay
Deep Dive: Sustainable Global Equity at Fidelity
Select a chapter to discover more
Click to explore
Jamie Harvey
Aditya Shivram
Introduction: Going global in challenging times
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This is for investment professionals only and should not be relied upon by private investors.
Despite the challenging market headwinds, the global equity sector has continued to see inflows. A greater opportunity set is just one of the reasons why.
Worries about rising inflation, low-to-no growth and geopolitics have all contributed to significant volatility across the major asset classes.
However, from a forward-looking perspective, the good news is that investors have already taken a fair deal of pain. Equity valuations are reasonable and, when expectations are low, things only need to get no worse for markets to start to respond more positively. So, if markets are at or approaching a turning point, where should investors be looking to allocate? At home in the UK, aggregate valuations look cheap. But there are challenges amid a gloomy economic outlook marked by runaway inflation and a worsening cost-of-living crisis. Some would argue the case for a more global approach appears stronger. For a start, there are far more opportunities – the MSCI AC World Index has nearly 3,000 constituents, for example, compared to just 600 in the FTSE All Share. The outlook for earnings growth also looks more encouraging.
The argument for diversification is unambiguous. Going global reduces country-specific risk and provides access to a much broader set of opportunities and investment themes. This is a particularly important consideration for UK equity investors – more than 50% of the FTSE All Share is comprised of financials, industrials, materials and energy, with relatively low exposure to more innovative areas like technology and communication services. Such sector bias has the potential to have a meaningful impact on risk and return over time. The past decade – notwithstanding the recent correction – has been characterised by a record-breaking bull run in US equities, particularly technology. The rise of China and the liberalisation of its capital markets have also created new opportunities for investors, keen to gain exposure to the world’s second largest economy.
Against this backdrop, it should come as no surprise that an increasing number of investors are already starting to recognise the benefits of going global, whether they are looking for capital growth, income or a combination of the two. Indeed, IA data shows that the IA Global and Global Equity Income sectors are both firmly among the top 10 net selling IA sectors over the 12 months to the end of July.
Going with the flow
We expect this trend to continue going forward given the uncertain economic and investment backdrop. Another structural trend that should continue to support the shift from local to global is the increasing focus on sustainability. As more UK investors formalise how they integrate ESG considerations into their portfolio allocations and decision-making, a global approach is arguably best placed to provide unconstrained access to the most attractive sustainable investment opportunities. We have already started to see this play out over recent times, with nearly 30% of total ESG assets across the various IA sectors now sitting in the IA Global sector – nearly three times the amount of any other IA sector . This is likely to be a long-term trend, given that ESG funds still only account for just over 5% of the UK retail funds marketplace.
Top 10 IA sectors by net sales over last 12 months (£m)
Earnings growth is higher outside of the UK
Source: Bloomberg, Y+1 earnings estimates as at 24 August 2022.
Source: Investment Association, Fidelity International, 31 July 2022
UK investors AUM in ESG funds
Source: UK Investment Association as at 30/06/2022. Funds flagged as Responsible Investments according to the IA.
Video: Learn about the Sustainable Global Equity Fund
-4
-2
0
2
4
6
USA
Europe ex UK
Developed markets
AC World
EM
Japan
UK
Unallocated
Mixed investment 40-85% shares
Volatility managed
Global
Short-term money market
Global equity income
Flexible investment
Infrastructure
Corporate bond
Government bond
£8,337
£4,194
£4,140
£3,503
£2,580
£1,800
£1,085
£955
£734
£503
500
1,000
1,500
2,000
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022 - YTD
8
Non-ethical (left axis)
Ethical (left axis)
Ethical as percentage of total (right axis)
£bn
%
10
9
7
5
3
1) Source: Broadridge Fund File data as at 30 June 2022
Tap to explore
A global equity income strategy looks attractive in current conditions, says Aditya Shivram, portfolio manager of the Fidelity Sustainable Global Equity Income Fund
Recession concerns, geopolitical tensions and increased volatility are pushing investors’ attention towards more defensive areas such as equity income.
Over the last 6 months to 31 August 2022, the Global Equity Income sector has seen positive net sales flow of £1.83bn . With inflation currently proving so troublesome, a global equity income strategy has particular attractions. History tells us this is the case. The chart below, while focused on the US market, looks at the (very) long-term relationship between dividends and inflation. The obvious question is whether dividends can continue to grow against the current backdrop. Encouragingly, if we look back since 1900, the 10-year annualised growth in dividends across the S&P 500 has outpaced CPI growth nearly three-quarters (73%) of the time.
The key in such a challenging environment will be finding the companies most likely to increase their dividends. In this regard, an unconstrained global approach can help identify the most attractive investment opportunities wherever they may be located, while also avoiding some of the sector skew and concentration issues that can be found in narrower universes. A focus on sustainably managed businesses should also be a key consideration. For example, if we look at our own Sustainability Ratings, we can see that historically companies rated higher from a sustainability perspective have tended to higher levels of dividend growth. Clearly, factors such as a company’s competitive position, balance sheet strength and capital allocation also matter for dividend growth. However, it is illuminating that ESG leaders are more likely than ESG laggards to deliver long-term dividend growth across a range of economic scenarios.
The Fidelity Sustainable Global Equity Income Fund focuses on investing in high quality dividend payers and owning those companies over a long-term horizon. As a dividend-based total return strategy, two key components of the total return we deliver are the dividends of the portfolio companies and their dividend growth. Integrating sustainability into our analysis helps us to focus on companies with resilient business models and therefore sustainable and growing dividend streams. Many factors drive the long-term resilience of a business and therefore the resilience of its earnings and dividends. Industry structure, disruptive threats and pricing power are just a few of the factors our team analyse to build a forward-looking view of the prospects of a company. Another key aspect is to analyse a company’s stewardship of their business. Are strategic, operational and capital allocation decisions aligned with long-term value creation? Crucially, to answer this question we must consider the company’s management of its environmental and societal impact and whether company management are truly considering the long-term horizon.
Why ESG and dividends go hand in hand
Video: Learn about the Sustainable Global Equity Income Fund
1) UK Investment Association as at 31 August 2022.
Source: Fidelity International, as at 31 July 2022. The Fidelity Sustainability Ratings were launched in June 2019. For illustrative purposes only
Median five-year dividend growth by Fidelity sustainability rating
Why sustainability pays dividends
A growing source of resilient dividend growth
Dividends and strong governance
Fidelity’s sustainability ratings and dividend growth
X
However, sustainability does not just mean managing the long-term risks. It also presents potential opportunities. The large-scale shift towards a sustainable economy globally can offer sources of future dividend growth across a range of different sectors. Our portfolio holding Schneider Electric in the industrials sector is one such example. It is the market leader in automation and energy management systems which are seeing growing demand from companies increasingly looking to reduce their carbon footprint to meet net zero targets and reduce energy costs. Similarly, European utilities Endesa and Iberdrola offer attractive yields and reliable, regulated returns, while their significant investment in renewables also has the potential to drive future growth.
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Dividend policies may also in turn be supportive of good governance. Management’s commitment to an appropriate dividend can lead to a strong alignment of the interests of management and shareholders and can also help prevent managers from mis-allocating capital to potentially value-destructive initiatives.
Dividend sustainability is strongly linked to effective governance and sensible capital allocation. Well governed businesses with appropriate levels of debt and low off-balance sheet liabilities are better able to withstand different economic environments, while still maintaining profitability and therefore their dividends. The impact of Covid in 2020 shone a spotlight on the difference between companies with strong balance sheets and good historical capital allocation versus those with stretched debt levels and poorer capital allocation track records. Companies in the former category were able to maintain their dividends over that difficult period and those in the latter category were typically forced to cut their dividends.
We therefore strongly believe that a focus on sustainability is highly complementary with a dividend-based approach to equity investing. The attributes of resilience and reliability that we seek in a company go hand-in-hand with a strong corporate culture of risk management. Ultimately, if we want to access sustainable and growing dividend streams then we need to invest in sustainable companies.
Notably, initial historic data appears to show a positive relationship between higher standards of sustainability and better dividend outcomes. The chart overleaf looks at Fidelity’s sustainability ratings (which grade c. 3,700 companies from A to E) and their historic dividend growth. The analysis illustrates that companies with better sustainability ratings have delivered higher historic dividend growth. In fact, on average, companies rated A for sustainability have the highest levels of historical dividend growth, with D- and E-rated stocks delivering the lowest average levels of growth.
The value of integrating sustainability
Fidelity’s Sustainability Ratings provide the framework for focusing on the issues that matter and weighting them accordingly. Key indicators are identified and weighted according to their individual subsectors. These are supported by 130 underlying data points, alongside analysts’ qualitative assessment for each indicator.
When carrying out this analysis, we must acknowledge that different businesses face different environmental and social challenges. For example, for our holdings in the water-intensive semiconductor industry such as TSMC, water reduction policies should be in the spotlight. For our consumer staples holdings such as Unilever, the impact of their plastics and recycling policies are of greater importance. For the few relatively more energy intensive holdings in the portfolio such as industrial gases business Air Liquide, the company’s carbon reduction goals are one of our key areas of focus.
Integrating sustainability into risk analysis
This begins at the stock-specific level when sustainability risk is assessed alongside business model risk (will the company’s operating model prove resilient? Are management demonstrating good governance in terms of capital allocation?), financial risk (does the company have an appropriate level of debt on its balance sheet? Are there poor environmental or societal practices that are likely to create significant off balance sheet liabilities?) and valuation risk (are we overpaying for the business?). At the portfolio construction stage, we allocate the highest weighting to those stocks with lower estimated downside and lower weightings to those stocks where the range of outcomes is wider. Sustainability, therefore, forms a key building block of this multi-faceted approach to risk management.
Poor management of environmental and societal risks can have a meaningful impact on future cash flows, whether through higher regulatory costs, litigation, brand erosion or stranded assets. We’ve seen examples of this with product mis-selling in the financial services industry or environmental liabilities leading to substantial fines for industrial companies. Sustainability analysis is a key part of a dividend investor’s toolkit to ensure companies are appropriately managing these risks and protecting the cash flows that support dividends. This focus is also complementary to our emphasis on risk that is embedded throughout the strategy in order to deliver lower drawdowns than the market during stressed conditions.
*Source: Fidelity International, July 2022
Median five-year DPS growth*
A
8% 7% 6% 5% 4% 3% 2% 1% 0%
B
C
D
E
Select a title to view more
Why dividends make sense in an inflationary environment
Source: SG, Robert Shiller, Fidelity International, June 2022. Uses the S&P 500 Index to represent US equities.
“Integrating sustainability into our analysis helps us to focus on companies with resilient business models and therefore sustainable and growing dividend streams”
-8
-6
1881
Annualised 10yr DPS growth
12
1888
1895
1902
1909
1916
1923
1930
1937
1944
1951
1958
1965
1972
1979
1986
1993
2000
Annualised 10yr CPI growth
Aditya Shivram, portfolio manager
Please note that reference to specific securities should not be interpreted as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
These three companies are helping to address the UN’s Sustainable Development Goals and offering attractive return possibilities as a result, says Jamie Harvey
The UN’s Sustainable Development Goals (SDGs) are a group of 17 goals that define many of the biggest environmental and social challenges that need to be addressed over the coming decades.
Companies that directly address the targets and aims of the SDGs are likely to see growing demand for their products and services. This means the SDGs provide a powerful framework for investing, both from a return and from a sustainability perspective. Below we hear from Jamie Harvey, portfolio manager, on three stocks that the Fidelity Sustainable Global Equity Fund holds based on their relationship with the SDGs.
ADS is the global market leader in products that capture, store and treat rainwater. Whilst it may not sound particularly glamorous, ADS plays a very important role in making sure that our buildings, roads and agriculture stay safe (SDG 9) and use water efficiently (SDG 6). In the past, these products were made from concrete, however ADS’ plastic pipes offer many important advantages: they are much better for the environment (producing plastic pipe has a much lower carbon footprint and uses recycled plastic), they can be installed three times faster, and they cost 20% less. All of this aligns the company closely to SDGs 12 and 13, and explains why plastic pipes have taken a 35% market share over the last three decades. We think there is still a long way to go, which translates into many years of strong growth for ADS. ADS also demonstrates all the qualities of an exceptional business. It has a 70% market share, making it 10 times larger than the next biggest player. This means it can reinvest far more than its competitors back into the business, allowing it to continue to innovate and improve its manufacturing capacity and costs, whilst generating best-in-class margins and cash flows.
Video: Learn how Jamie Harvey integrates the UN’s SDGs into his investment process
Advanced Drainage Systems (ADS)
Relevant SDGs
Bank Rakyat is one of the largest state-controlled banks in Indonesia and provides saving, lending, insurance and payment services. It is the largest microfinance provider in the country, where two thirds of adults don’t have access to formal financial services. Over half of Bank Rakyat’s loans are provided to low-income individuals and small and medium-sized enterprises. As a result, the bank is contributing to deeper financial inclusion (SDG 8), improved access for micro, small and medium enterprises (SDG 9) and gender equality (SDG 5) through its ultra-micro ecosystem. This offers greater access to more affordable financing for approximately 45 million micro and ultra-micro businesses that play a crucial role in supporting Indonesia's economy. We believe the long-term growth opportunity is attractive because of Indonesia’s low bank penetration and low domestic credit to GDP relative to neighbouring countries. Over the past decade, Bank Rakyat’s strength in micro-finance has enabled it to outgrow the market as millions of low-income individuals accessed banking for the first time. The bank should be able to maintain double-digit loan growth and an attractive return on equity for many years to come.
Bank Rakyat
Sartorius Stedim is a global healthcare equipment supplier which provides the essential equipment used to produce innovative drugs and vaccines (including Covid-19 vaccines). The company is the global leader in single-use technology, which allows these innovative, life-saving biologic medicines to be produced at faster speeds, with lower costs and with reduced environmental impact (SDG 3). Single-use technology allows the same drugs to be made with 90-95% less water and chemical waste and 30% less electricity than the traditional stainless-steel method, which still accounts for c.75% of the market (SDG 12). Thanks to these benefits, the market is growing at rate of around 15%, with Sartorius Stedim well placed thanks to its market-leading technology.
Sartorius Stedim
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The industry is facing two key challenges but both have been overplayed by critics, says Jamie Harvey, portfolio manager, Fidelity Sustainable Global Equity Fund
Sustainable investing has come in for a great deal of criticism of late.
The fall from grace has been spectacular: some ESG-labelled funds have invested in companies with significant exposure to Russia , questions have been raised about how to balance energy security and affordable prices with the green energy transition, and there has been debate about the role of defence companies in sustainability-focused portfolios. However, none of this means that we should abandon the approach altogether, as some critics would argue . This criticism has ultimately stemmed from two core challenges, both of which are material but which have nevertheless been overplayed.
The other challenge the industry has been navigating in 2022 is ongoing shifts in the broader investment landscape. Higher interest rates, inflation and energy prices have all presented challenges. However, in uncertain times, it is easy to lose sight of the fact that most of the long-term global sustainability trends remain unchanged, and in many cases, strengthened or accelerated. Below are just three examples of long-term themes that we invest in for the Fidelity Sustainable Global Equity Fund, showing that we remain very early in the adoption of vital technologies like electric vehicles, offshore wind installations and innovative drug manufacturing methods.
A lack of standardisation
This is why detailed stock-level analysis is vitally important and a key reason why we rely heavily on Fidelity's own Sustainability Ratings in our stock research and selection process. I think this debate risks missing the wood for the trees. No, we do not have a perfect, universally agreed framework to score companies on sustainability. However, neither is there universal agreement in the market on whether a certain stock is a buy or a sell. Aspects of sustainability will mean different things to different people, and that is ok; I believe we need to accept there is a level of subjectivity involved. Perhaps most importantly, we mustn’t let this plurality of approaches impede the pursuit of further progress. To say that investors should stop pressuring companies to introduce or improve important goals such as emissions reductions targets, supply chain auditing or access to employee training and talent development programmes seems misplaced. Investors, alongside governments and regulators, should be encouraging constant improvement at the companies we engage with whilst the sustainable investing industry continues to develop and mature. There is little time to lose in tackling many of the biggest challenges facing society.
“Aspects of sustainability will mean different things to different people, and that is ok”
As a relatively new field, sustainable investing suffers from a lack of commonly agreed standards and metrics as to what represents best practice. This means that to some extent, the ESG profile of a company is at least partly in the eye of the beholder. This has some important consequences. For example, it makes it difficult to group ESG funds together when analysing performance – they can have quite different holdings from one fund to the next, with different risk profiles and sensitivities. To talk about the performance of ESG funds as a single group is a large oversimplification. It also risks undermining confidence in the integrity of sustainability analysis, which I believe is an unfounded concern. For example, much has been made of the lack of correlation between the ESG ratings given to stocks by the major third-party rating agencies (such as MSCI and Morningstar) compared to the very tight correlation of bond ratings. However, much of this is explained by the use of different methodologies and fundamental differences in what the agencies are trying to measure (for example, one might be measuring the risk to a company’s valuation from ESG factors while another might be looking at the impact a company has on environmental and social factors).
Impact of a changing investment landscape
1). The Wall Street Journal Article, Russia War in Ukraine Exposes Weakness in ESG Fund. 1 April 2022 2). Financial Times Article, The fallacy of ESG investing. 23 October 2020.
Source: Bloomberg New Energy Finance, Katusa Research, U.S. Global Investors
Single-use bioprocessing market size ($bn)
Source: Bloomberg New Energy Finance, Katusa Research, U.S. GlobalInvestors
Annual EV Sales in Millions
Source: Bloomberg New Energy Finance, Note: Other – Spain, Portugal, Italy, Finland, Sweden, Norway, Lithuania, Greece
Annual Offshore wind installations (GW)
These trends will continue regardless of short-term changes in interest rates or inflation, and in fact in some cases, are accelerated by recent moves. For example, the rise in energy prices is pushing governments to accelerate renewables investment and building efficiency measures , while higher inflation is driving greater investment in automation and productivity tools. Looking forward, we have identified a number of long-term trends that we think offer significant potential for profitable growth years into the future. As a result, the fund is primarily exposed to stocks in the technology, utilities, industrials and health care sectors where we find the best balance of growth, cash flow generation and valuation. Looking forward, we have identified a number of long-term trends that we think offer significant potential for profitable growth years into the future. As a result, the fund is primarily exposed to stocks in the technology, utilities, industrials and health care sectors where we find the best balance of growth, cash flow generation and valuation. This leads to a portfolio that has significantly better growth expectations than the benchmark (2023 forecast sales growth of 8% vs 2%, and net income growth of 18% vs 5%), higher return on equity and lower capital intensity, all for modest 15% premium valuation to the benchmark (as measured by FCF yield, price to earnings or EV to EBITDA) . We think this premium is well deserved given the long duration of the growth outlook, combined with high quality of company fundamentals.
3). MIT Sloan Sustainability Initiative, The Aggregate Confusion Project.
4). IEA, Oil Market Report - March 2022. 5). Euractiv Article, EU urges building insulation push in bid to end reliance on Russian gas. 19 May 2022. 6). Source: Fidelity International, ‘Fund as a stock’. Sales Growth, Net Income Growth estimates and valuation multiples for the fund are based on Fidelity analyst estimates as of 8 June 2022, and Benchmark estimates are based on IBES estimates where Fidelity estimates are not available.
Annual EV sales in millions
NEXT
BACK
Single-use bioprocessing market size
2022
2023
2024
2025
2026
2027
2028
2029
2030
20
30
40
50
60
70
80
90
We are here
2035
2040
China
United States
Rest of Europe
France
Germany
Rest of World
$bn
28.5
Denmark
Netherlands
US
Taiwan
South Korea
Poland
India
Belguim
Ireland
Other
Vietnam
Annual offshore wind installations
25.4
22.8
22.5
19.6
16.6
10.7
7.4
8.2
8.7
6.0
7.5
4.4
0.9
4.5
2.0
1.5
0.3
1.3
15
25
GW
4.7
Jamie Harvey, portfolio manager
Sustainable Global Equity Fund
A look into our two sustainable funds
Sustainable Global Equity Income Fund
Choose a fund to view
Key facts
Investment process
Key themes
Positioning
Overview
Learn more
The Fidelity Sustainable Global Equity Income Fund aims to deliver an attractive dividend-based return, with lower volatility than global equity market indices, through a concentrated portfolio of 40-50 quality companies with leading sustainability practices.
A concentrated global equity strategy investing in businesses with best-in-class sustainability profiles Focus on three sustainable, additive sources of alpha: ESG Leaders, Duration and Change Quality growth bias but able to take advantage of opportunities in all market environments
Source: Fidelity International as at 30 September 2022. Fund information relates to the W-ACC-GBP share class. The OCF is for the year ending 30 June 2022. This figure may vary from year to year.
Sector positioning
Sector
Health care
IT
Utilities
Industrials
Financials
Materials
Real estate
Comm. srvcs.
Energy
Cons. staples
Cons. disc.
Cash & others
Fund weight
20.9
27.6
6.9
12.6
13.4
3.3
0.8
2.9
0.0
1.8
5.5
-10%
0%
10%
Relative weight
Regional positioning
Pacific ex Jp.
N. America
19.7
2.1
4.1
58.4
Market cap positioning
Market cap
Above 100bn
50bn to 100bn
20bn to 50bn
10bn to 20bn
5bn to 10bn
Less than 5bn
21.1
9.7
27.8
21.0
7.7
7.2
-25%
25%
28%
3%
4%
5%
8%
15%
17%
Absolute exposure
Relative exposure
Industrial
Consumer staples
Information technology
Communication services
Consumer discretionary
Source: Fidelity International, 31 August 2022. Portfolio positioning shown above is the Fidelity Sustainable Global Equity Income and subject to changes. Comparative index: MSCI AC World Index.
-5%
Finantials
Comm. svcs.
Cons. discr.
Well diversified exposure across sectors Tilt towards higher industries (Consumer, Industrials) Within 'bond proxies' a clear preference for Utilities over Telcos and REIT's A defensive bias but pockets of cyclicality, particularly in Tech and Industrials
• • • •
For investors looking for quality growth from global exposure
Invests in companies with leading or improving ESG characteristics
Concentrated portfolio with low turnover to promote sustainable engagement
AUM
OCF
Expected turnover
£506m
0.85%
30-40%
ESG universe
Idea generation
Research and selection
Concentrated 40-60 position portfolio
Ongoing portfolio construction & risk
Active ownership and engagement
Defining the investible ESG universe through ESG ratings, carbon emmisions and exclusions
Fidelity research, 3rd party research, company meetings, quantitative screens
Three step process with integrated sustainability, financial, and valuation analysis
Stock research & selection
Sustainability
Fundamentals
Valuation
Global equities - investment universe
Finding companies that drive positive societal change
Rigorous bottom-up financial analysis
Selecting stocks with double-digit IRR potential
In-depth review of environmental, social and governance profile to identify companies that address key sustainability challenges with clear SDG alignment, and that operate their business in a sustainable way
We work with the Fidelity analysts to gain a fundmental edge in understanding the business and industry which it operates. We then overlay our own views on the trajectory of earnings forecasts in order to identify companies where expectations are too low on a 3-5 year view.
A bespoke valuation approach allows us to assess upside potential as well as its relative attractiveness versus history, other potential candidates and existing holdings. Stocks must meet the high bar of a double-digit IRR to be included in the fund
Stock Research & Selection
Selecting only the best ideas to construct a 40-60 stock portfolio
Renewables now cheaper then fossils in most regions globally
Clean energy generation, distribution and storage
Robotics, automation and cloud computing to improve resource footprint and efficiency
Improving resource intensity and productivity
$1.1 trillion savings opportunity from improving building efficiency
Infrastructure decarbonisation
Bringing more consumers into the financial system
Financial inclusion and resiliency
Personalised healthcare, genetics, biologic drugs, novel delivery systems
Healthcare innovation
MSCI AC World Index
Comparative Index
Quality growth tilt
Investment approach
>70% invested in companies BBB rated or above by MSCI. Expect 50%+ in ESG leaders rated AA or above.
ESG positioning
>50% lower than the index
Carbon footprint (scope 1 & 2)
Public health (#s 1, 2, 3, 6, 16)
Exposure to UN Sustainable Development Goals*
Equal opportunity (#s 4, 5, 8, 9, 10)
Climate and planet (#s 7, 11, 12, 13, 14 15)
40-60
Holdings
>80%
Ex-ante active money
~1.0
Ex-ante beta
~30-40%
Ongoing charges figures (OCF)
B3RDH34
Sedol
GB00B3RDH349
ISIN
Source: Fidelity International, 2022. Holdings can vary from those in the index quoted. For this reason, the comparison index is used for reference only.*SDGs - 1: No Poverty; 2: Zero Hunger; 3: Good Health and Well-being; 4: Quality Education; 5: Gender Equality; 6: Clean Water and Sanitation; 7: Affordable and Clean Energy; 8: Decent Work and Economic Growth; 9: Industry, Innovation and Infrastructure; 10: Reduced Inequality; 11: Sustainable Cities and Communities; 12: Responsible Consumption and Production; 13: Climate Action; 14: Life Below Water; 15: Life on Land;16: Peace and Justice Strong Institutions. The OCF is for the year ending 30 June 2022. This figure may vary from year to year.
Learn more about the Sustainable Global Equity Fund
£49m
10-30%
0.89%
For investors looking for a dividend based total return
A focus on quality and sustainable dividend payers
Targets lower volatility than global equity indices
Screen for stable/ improving returns on capitol, strong balance sheets, attractive valuations, effective capitol allocations
In collaboration with Fidelity research team, assessment of business, valuation (free cash flow), management allignment
Exclusion, integration and engagement
MSCI ACWI - investment universe
Stock selection
High conviction portfolio c. 40-50 companies
Low turnover allowing for meaningful engagement
Position size based on downside risk and total return potential. Typical 3-4 year holding period, continuous monitoring
Quality income
40-50
Higher than MSCI AC World Index
Dividend yield
<1
Beta
~3-6%
Ex-ante tracking error
<5% at purchase
Stock limit
~10-30%
Turnover
GB0034204569
>70% invested in companies BBB rated or above by MSCI ESG Ratings
Source: Fidelity International, May 2022. Holdings can vary from those in the index quoted. For this reason, the comparison index is used for reference only. Portfolio characteristics are indicative and are subject to change. Information relates to the ACC GBP share class which will be renamed W ACC GBP post-repurpose. The OCF is for the year ending 30 June 2022. This figure may vary from year to year.
3420456
SEDOL
Ongoing charges
An unconstrained, low turnover portfolio
Typical portfolio characteristics
Quality
Large
Bias to quality sustainable businesses
Target companies >$4bn market cap
Learn more about the Sustainable Global Equity Income Fund
Source: Fidelity International. Data for FIF Sustainable Global Equity Fund as at 30 September 2022. Comparative Index: MSCI AC World Index from 24 January 2022. Market capitalisation in GBP
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