Fidelity Investments has launched its first institutional fund in Australia since 2005 – a global small-cap fund – which has been seeded by an existing client.
The fund, to be run out of Boston but drawing on the firm’s 400 portfolio managers around the world, will invest in between 175 and 225 stocks. The manager is Fidelity’s wholly owned institutional subsidiary, Pyramis Global Advisors. It aims to add 3 per cent alpha above the index, with a tracking error of 4-6 per cent. According to the portfolio manager, Rob Feldman, Fidelity’s “;global footprint and resources allow us to cover this asset class like no-one else”;. Speaking in Sydney yesterday, Feldman said that Fidelity covered about 75 per cent of the universe by capitalisation. “;We have too many good ideas. That’s my problem. In no way am I seeing a shortage of good ideas. My job is to pick the best of the best,”; he said. Nevertheless, he admitted that global small caps did not represent the extreme value that they did around 2001, at the end of the tech boom. “;In 2001 they were dirt cheap,”; he said. “;Now, they are certainly not expensive but they’re not dirt cheap.”; The average price:sale ratio for global large caps is 1.35 times compared with 1.08 times for small caps. Price:book is 2.64 times for large caps against 2.38 for small caps. Feldman said that global small caps added diversification to a portfolio because they tended to be more local in nature than large caps. They also had different sector weights. The Fidelity fund, for instance, has only 17.4 per cent in financials, compared with more than 40 per cent in the large-cap index. The other major sectors for the fund are industrials, at 20.4 per cent, materials at 10.3 per cent, and information technology, at 9.8 per cent. Feldman said that when the MSCI launches its new global index structure next year, with the addition of a GIMI index which is less weighted to large caps, there should be more interest generated in global small caps. Jason Ciccolallo, Australian director and head of institutional sales, said that because of the inefficiencies in the sector, there was strong potential for alpha generation. “;We have found that the asset class is ripe with opportunity to employ our time-tested philosophy of investing in overlooked and under-researched companies,”; he said.
The changing nature of volatility in financial markets and a more client-centric approach that allows allocations to be tailored is helping more institutions adopt a total portfolio approach to investment management, the Fiduciary Investors Symposium at Stanford University has heard.
Prashant MehraOctober 8, 2024
