Intuition and Momentum Guide this Manager

Manager research analyst Abdulai Mohamed shares his findings on the strategies of Fidelity's Mark Schmehl.

Abdulai Mohamed, CFA 11 April, 2023 | 4:29AM
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Abdulai Mohamed: 2022 was a rough year for many stock funds. But in early 2023, signs of recovery are starting to show as equity markets rebound. The question is which of these stocks are just bouncing off lows and which are solid long-term investments?

One fund that stands out as a solid long-term investment is the aggressive Morningstar Analyst Bronze-rated Fidelity Global Innovators Fund. This fund has a unique investment strategy that focuses on two extremes of the market. The fund invests in stocks with the weak fundamentals that are expected to improve as well as shares of companies that are innovating and gaining market share. Portfolio manager Mark Schmehl has developed a distinctive and intricate investment approach, giving him a competitive advantage over his peers. Despite facing challenges in the past two years with the ranking in the bottom 4th of the Global Equity Morningstar category in 2021 and 2022, Schmehl has demonstrated a strong performance in other strategies he has run for longer periods of time. And this strategy still has good intermediate-term results, ranking 1st and 2nd in its peer group over five and three years through February 28, 2023.

Schmehl's investment process is unique and hard to replicate. He relies on his intuition and momentum to set sector and security weights, occasionally identifying additional opportunities within the same industry or drilling into sectors he expects to perform well. Schmehl has demonstrated an ability to identify winning sectors and trim those that are losing. For instance, the fund owned more tech stocks than its index and peers from its inception to the end of 2020 because Schmehl continued to identify profitable opportunities in that sector. In 2021, the manager picked up energy stocks whose fundamentals have deteriorated because he believed the lockdown restrictions would be lifted at some point. Both moves proved successful for the fund.

Schmehl's moves don't always immediately pay off. Despite cutting its tech holdings by more than half in 2022, the fund still experienced steep losses in this technology stock sell-off. So far in 2023, Schmehl has moved the portfolio back into technology companies in the event the market favours the growth stocks again. Schmehl's investment approach requires patience. But his long track record is a testament to his ability to navigate economic storms. He has survived the 2000 tech bubble, the 2007 financial crisis and the recent COVID-19 pandemic in other funds where he uses a similar process, including the Bronze-rated Fidelity Canadian Growth Company and the Fidelity Special Situations. Schmehl's approach can reward investors willing to endure temporary setbacks.

For Morningstar, I'm Abdulai Mohamed.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Fidelity Global Innovators Cl F38.25 CAD-0.18Rating

About Author

Abdulai Mohamed, CFA  is a Manager Research Analyst for Morningstar.  

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