Fidelity Funds - Chartbook.fid-intl.com

Fidelity
Funds
Investment Manager’s Report*
Investors largely favoured defensive sectors in a volatile environment
Total retrun for sector relative to MSCI World
in euros (rescaled to 100)
120
100
80
Apr 14
Source: Datastream, 31.10.2014
May 14
Cons Discr Cons Staples Energy
Financials Health care Industrials
IT Telecom Materials
Utilities
Jun 14
Jul 14
Aug 14
Sep 14
Oct 14
The prevalence of low interest rates and accommodative monetary policies by central banks led to increased demand for high dividend yielding
sectors. As a result, utilities remained in favour, although there was some profit taking during the period. Meanwhile, technology was the best
performing sector over the six-months under review due to strong returns from industry bellwethers including Microsoft, Apple and Google. Investors
also favoured the health care sector amid a rising risk environment owing to growing excitement around new drug pipelines and M&A speculation. On
the other hand, concerns over the negative impact that weakening global growth would have on demand put pressure on materials stocks. Energy
shares, which were in favour until the middle of the year owing to their relatively higher yields, fell significantly due to worries over rising supply and
falling demand. With the exception of the US, growth expectations around the world are being revised lower. Against this environment, investors are
likely to focus on high-quality sustainable growth stocks, thereby rewarding genuine stock pickers.
Bond markets
Fixed income markets posted positive returns over the period. Government bonds rallied as global central banks reinforced their accommodative
monetary policy stance. The ECB maintained its easing bias and unveiled significant policy measures, including a rate cut, at its June meeting and
another at its September meeting. Geopolitical events, such as militant strikes in Iraq and political tensions between Ukraine and Russia also led to
increased demand for safe-havens assets. This supported investment grade corporate bonds, which benefited from the rally in interest rates.
Conversely, increased market volatility amid geopolitical tensions and specific events, such as sanctions against Russia and Argentina's default, led to
a marked sell-off in high-yield bonds. Meanwhile, recent economic data across regions remained mixed, with the eurozone continuing to underperform
in a low growth, low inflation environment. On the other hand, economic growth in the US and the UK accelerated over the recent past.
ECB Balance Sheet To Expand
500.0
Bank of England: Holdings of government securities (£ billion, R.H.S)
US Fed: Total Assets (US$ trillion)
ECB: Total Eurosystem liabilities (EUR trillion)
5.0
400.0
4.0
% YoY change
300.0
200.0
3.0
2.0
100.0
1.0
0.0
0.0
08-Nov
08-Jul
08-Mar
07-Nov
07-Jul
Source: Datastream, 30.09.2014
09-Mar
09-Jul
09-Nov
10-Mar
10-Jul
10-Nov
11-Mar
11-Jul
11-Nov
12-Mar
12-Jul
12-Nov
13-Mar
13-Jul
13-Nov
14-Mar
14-Jul
The varied performance across large economies is leading to a divergence in central banks' policies. In the US and the UK, the early adoption of
quantitative easing supported the economic recovery. As a result, these countries are now seeing more vigorous expansion. On the other hand, in
Europe, the ECB hasn't yet undertaken broad-based government purchases and its balance sheet continues to shrink. In a scenario of weak growth
and insufficient balance sheet expansion, a further slide in inflation expectations is likely. ECB President Mario Draghi recently addressed this issue,
stating that the central bank plans to expand its balance sheet to about €3 trillion, vs. about €2 trillion currently. However, broad-based government
purchases by the ECB remain controversial within the bank's Governing Council and in several member states, notably Germany.
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