AI Can Boost Dividends Too, Says Fidelity Manager – Morningstar

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Sara Silano: Welcome to Morningstar. Today I’m joined by Aditya Shivram, manager of the Fidelity Global Equity Income Fund, which has a 5-star Morningstar rating.

Aditya, thank you for being here today. You have just won the Morningstar Award for Investing Excellence in the Global Equity category. What have been your winning picks over the past year?

Aditya Shivram: If we look at 2023, I would say there are two big groups in terms of winning picks. First, at the industry level, we chose companies that were benefiting and supported by artificial intelligence (AI). This was a group of companies that allowed us to perform well in 2023. The second group of companies that gave us a strong performance in 2023 was the insurance and reinsurance sector, where the favourable pricing environment that we saw especially in 2023 really translated into the profitability of these businesses.

Silano: What is your investment process?

Shivram: OK. I think the investment process is very quick and it is worth outlining the main objectives that we are aiming to achieve. The first is strong performance over an entire business cycle. The second is to achieve that performance with fewer drawdowns. The third objective is to grow dividends over time.

So, with that in mind, the process we follow is to own a portfolio concentrated in – say – about 40 companies. This is a low turnover portfolio. Within this portfolio we look for companies with solid business models, with solid balance sheets, with recurring earnings streams, and we want to be able to buy them at an attractive valuation. The key part is that we look for all these elements in the companies we choose, not only an attractive valuation, but also a strong balance sheet, a strong business model and an attractive valuation. On the research side, we have our own analysts who help us in the due diligence of the companies. So, we do extensive due diligence on the companies that we review. And because it is a concentrated portfolio, we know these companies well. We own them over a long period of time, so we make sure that all these companies really contribute to the returns of the fund.

Silano: Finally, what do you see as the main risks for investors looking for high dividend stocks this year?

Shivram: I think one of the things we need to look at from an investor perspective is sentiment related to the combination of three factors. The first relates to interest rates. The second is earnings growth expectations. The third is inflation. And the reason why I have pointed to these three aspects predominantly is that the current market narrative predicts a perfect landing for the economy and also for the equity markets, in that interest rates will come down well, corporate earnings growth will be good and GDP growth will accelerate. And I think we have to be aware of the fact that while that may be true, the reality is that maybe one of those things may not be as attractive or as good as we think. And I think we should keep that in mind as we look ahead to 2024.

Silano: Aditya, thank you very much for being here today. For Morningstar, I’m Sara Silano.

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