William W. Hoyt

Fidelity manager believes banks "are not high-quality dividend payers."

Michael Ryval 3 February, 2012 | 7:00PM
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One of the key lessons that William W. Hoyt drew from the 2008 global financial crisis was the need to reduce risk and have smaller positions.

"When we launched our fund back in 2007, we were in a very healthy global economic environment," says Hoyt, a Boston-based portfolio manager with Fidelity Investments who is on the team that oversees Fidelity Global Dividend Series A. "Positions were twice as large as what we currently have. I would ask our analysts for their best ideas, and then place much larger individual bets."

With markets continuing to be volatile, Hoyt is much more risk-conscious. "One theory in handling a crisis is that you can double-down on all your big bets, and when a recovery comes they should make up the difference. Problem is, when a recovery comes it's almost never in the same areas that performed well before."

As a result, rather than hold 3% in one company, Hoy manages risk by allocating a half-percentage weight to each of six names from the same sector. That's the case, for instance, with the luxury-goods exposure that includes companies such as Ralph Lauren Corp. RL.

"All of them have nearly identical fundamentals and opportunities. So I spread market risk across individual company opportunities," says Hoyt. "That dramatically dampens the potential impact of any one company having a minor mishap in their otherwise normal fundamentals -- and having the market over-react to that mishap, which is what often ends up happening."

It's an approach that that has helped the 3-star rated fund over the past few years. It returned 1.6% for the 12 months ended Dec. 31, compared to a 7.2% loss for the median fund in the Global Equity category. Over the two- and three-year periods it returned an annualized 2.5% and 5.6% respectively, compared to -0.2% and 5.3% for the median.

The fund is one of four that comprise Fidelity Global Monthly Income Series A and represents about half of the latter's assets. Also holding a 3-star rating, this fund has outperformed the median in its category, Global Neutral Balanced.

William W. Hoyt

Hoyt seeks dividend-paying stocks, but he is very selective. "Historically, a lot of the best dividend payers have been mostly banks. But they were at the epicentre of the global financial crisis. And while they have very attractive yields they are not high-quality dividend payers."

By high quality, Hoyt means that his stocks must have the potential to grow their dividends. "At a minimum, I ask our analysts for a demonstration of dividend growth over the last four years, or preferably five years."

Other holdings in the 100-name portfolio that meet his criteria include tobacco-product makers such as Philip Morris International Inc. PM, which has a 4% dividend yield.

"Even through relatively tough economic conditions, these companies tend to be more stable than other parts of the economy," says Hoyt. "They have a successful history of growing dividends consistently as their cash flows have grown."

Holdings are limited to a maximum of about 3% of the assets of the global equity fund, and about 1.5% in the global neutral balanced fund. Turnover for the six months ended Sept. 30 was 29% in the former fund, and 13% for the latter.

A native of Madison, Wisconsin, Hoyt is a 20-year industry veteran who earned a bachelor of science, majoring in economics, at the University of Wisconsin at Madison in 1990. In 1992, after graduating with an MBA from the same university, he landed an analyst's posting at Baker, Fentress & Co., in Chicago.

Four years later, Hoyt joined Boston-based Pioneer Group, where he followed technology and consumer-discretionary and consumer-staples companies. Between 1998 and 1999, he worked at Neuberger Berman, where he was an associate portfolio manager on the small- and mid-cap growth team.

In 1999, Hoyt took on an assignment as a senior analyst at Scudder Kemper Investments in San Francisco. While developing stock-selection models for Scudder's private-investment-counsel group, he began to appreciate the quantitative side of the business. "A portfolio has to be a cohesive whole. But it must be constructed with discipline and risk control layered on top."

The following year, Hoyt became a partner at a Boston-based start-up, Trust & Fiduciary Management Services, which offered customized asset-management services to trust banks and brokerage dealers. However, since the growth of the firm was not as robust as expected, Hoyt left to join Fidelity in 2005 because there was an opportunity to develop a platform for global stock selection.

Based on his study of markets and his own experience, Hoyt believes that 2011 is indicative of what to expect for the next four to five years. That is, periods of optimism will be punctuated by dramatic events, such as Greece's decision to hold a referendum on a eurozone bailout package.

"These things will last a month or two and will be painful," says Hoyt. "But they will also be buying opportunities. This is my best guess, if history is any guide, for next half decade."

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Michael Ryval

Michael Ryval  is regular contributor to Morningstar. He is a Toronto-based freelance writer who specializes in business and investing.

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