15th July 2011

Fund Category : Equity - diversified

Fund Benchmark : BSE 200

Fund Strategy

Stocks in the Fidelity Equity Fund are hand-picked using a bottom-up stockpicking approach backed by Fidelity's comprehensive, on-the-ground research capabilities. The Fund seeks to include the best opportunities that the market presents, without any sector/cap bias. The fund looks for companies with solid long-term growth prospects, sound management track records, and sustainable or scalable business models. The key features of the Fidelity Equity Fund's investment strategy include:

Diversification: The Fund is well diversified across sectors in about 60 to 80 stocks. The Scheme is likely to be fully invested in equity at all times.

Bottom-up stock picking: Consistent with Fidelity's approach, the Fund focuses on bottom-up stock picking (i.e. focussing solely on prospects of individual stocks) as opposed to a topdown approach (i.e. predicting macro economic and political trends and taking investment decisions based on them).

No cap bias: It will seek to identify the best stocks at a point in time, regardless of any market cap bias.

Fund Performance

Performance Commentary

The long-term performance of the Fidelity Equity Fund is an outcome of the process-driven approach to portfolio management that the firm follows. We aim to generate consistent risk-adjusted performance over longer periods of time. Every stock is picked through a bottom-up approach using fundamental analysis as the basis. We also take macroeconomic factors into account where warranted, although these are secondary concerns in the overall investment hypothesis. We seek to buy stocks at prices that have upside potential over the long-term, and tend to stay away from momentum plays. The portfolio is subject to a thorough review at regular intervals to examine the validity of each investment hypothesis.

Sectoral and thematic preferences

Some sectors have fallen a lot in the recent past. So we are looking to see whether any of them have bottomed out. This could be oil marketing companies, the industrial space or even the real estate sector. However, it is important to remember though that the fund is managed with a very strong bottom-up approach which is aided by a top-down view. The fund needs to have a macro view and a global view as well. Some sectors are very top-down such as cyclical like petrochemicals and steel. For financials, there is a macro view that has to be taken into account such as the view on interest rates.

So the two approaches are married. Our strong preference towards a bottom-up approach guides our stock picks. Then we ask ourselves at this stage in the cycle, what is the price we are paying for it and is it justified.

What's happening in the business cycle? How will it play out? What is happening in the economy? What's happening globally? How will all these affect multiples? But all these questions are a second derivative, the first being bottom-up stock picking. So the top down view does not drive the sector allocation. It's not that we pick a sector and say let's buy a few stocks in it. So the sector allocation is just a result of the stocks we have invested in, not vice versa.

For instance, the fund owns many banking stocks because we like the corporate governance and the growth prospects. It is a proxy for the growth of the economy. This is why Financial Services corners a dominant portion of the portfolio. It is not that we decided to pick on Financial Services and then hunt for the relevant stocks.

Outlook

The outlook for growth in earnings remains reasonable and the recent market corrections have made valuations a bit more reasonable. We remain constructive on the market for 2011, but believe that it will continue to be volatile.

The key concern areas in our view would be any shocks emanating from the developed world or the high domestic inflation. There are some positive signs on the economic front in the western world, however, the debt levels remain high. On the domestic side, while inflation is expected to come down over the next 3-4 months, higher commodity prices or sticky manufacturing prices would be an area to watch out for.

Overall, notwithstanding the near-term market volatility, the longer-term picture for India remains positive.