Emma Wall: Hello and welcome to the Morningstar Series 'Why Should I Invest With You?' I'm Emma Wall and I'm joined today by Jeremy Podger, manager of the Fidelity Global Special Situations Fund.
Jeremy Podger: Hello.
Wall: So special situations in the title, global special situations. A lot of people have special situations in their fund title and they interpret it in a very different way. So what does it mean to you?
Podger: What it doesn’t mean for me, is distressed situations. I think some people think of special situations as being things that are perhaps on the verge of bankruptcy, that’s absolutely not what we are looking for. We are looking for three things, big corporate change situations, big structural changes that will give us opportunities over the next 12 to 18 months. Looking also for exceptional value and these are companies that are valued at a very low multiple, with the expectation implicit in the market, the profitability will not improve, but where we can see that improvement coming through. So that's the sort of three year view.
The final category is what we call unique businesses. So this is really an unusual category for a special situations fund. Here we are looking for companies with very strong revenues growth. So those companies should be able to deliver something like 15% per annum returns just from internally generated growth. So they are exceptional strong growth situations.
Wall: Would you say that style then is market agnostic or cycle agnostic? Because you delivered double digit returns in 2012, '13, '14 and '15, the backdrop to those years were extremely different from one another.
Podger: I mean we've deliberately engineered it so that we should be able to generate alpha in different types of market situations. So the corporate change area as long as there is a sufficient flow of interesting deals. That should be able to generate returns through thick and thin. The value situation should do well, if we got some economic expansion. The growth situation should have autonomous growth. So we have really a blend of styles that should work in most market situations, not necessarily in all.
Wall: Those four years included a bull market, a flat market, and now I'm not sure what to describe the market we are in now, but it's certainly difficult to predict. How do you then interpret those themes and find opportunities in situations we find ourselves.
Podger: I think the current (trend) if we think back over the last three to four years. Is that we've had a fairly static earnings backdrop around the world. And for me the key has been to identify those areas where we can see growth, particularly both in those value and in those unique business situations. So over that period we've seen good growth out of the U.S. that certainly produced much better growth than the rest of the world.
And in terms of sectors we've seen good growth out of technology and out of healthcare and some of the consumer discretionary areas. Now assuming that we continue to kind of muddle through which is rarely the underlying scenario that we've been in the last three to four years, I think that strategy continues to work. Perhaps the interesting question from here is at what stage do those stocks that have performed really poorly start to look very interesting on a longer term view. But certainly from where I'm standing now. I think it's a bit premature to sort of strategically reallocate to those areas.
Wall: Jeremy, thank you very much. This is Emma Wall for Morningstar. Thank you for watching.
