QUARTERLY FUND REVIEW€¦ · 01/11/2019 · † Commissions, trailing commissions, management...

© 2020 FIDELITY INVESTMENTS CANADA ULC FOR ADVISOR USE ONLY 161501-v2020428

March 31, 2020

FIDELITY NORTHSTAR® FUNDQUARTERLY FUND REVIEW


Fund overview

Source: Fidelity Investments Canada ULC.*Kyle Weaver took over portfolio management responsibility for Fidelity NorthStar Fund on November 1, 2019.

Investment objectiveThe Fund aims to achieve long-term capital growth. It invests primarily in equity securities of companies anywhere in the world.

Management FUND MANAGER Daniel DupontEDUCATION BA – McGill University FUND MANAGER Joel Tillinghast, CFAEDUCATION MBA – Kellogg School of Management,

Northwestern FUND MANAGER Kyle Weaver*EDUCATION BA – Stanford University

Fund inception date October 31, 2002Fund benchmark None


Fund performance (Series B)Annualized returns as at March 31, 2020

† Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus, which contains detailed investment information, before investing. The indicated rates of return are historical annual compounded total returns for the period indicated including changes in unit value and reinvestment distributions. The indicated rates of return do not take into account sales, redemption, distribution or option charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer and are not guaranteed or insured. Their values change frequently. Past performance may not be repeated. Source: Fidelity Investments Canada ULC. Returns in Canadian Dollars. Past performance is no guarantee of future results. Performance for periods greater than one year have been annualized. Fund inception date is October 31, 2002. Returns based on Series B. Totals may not equal due to rounding.

Calendar year returns

YTD 3 MO 1 YR 2 YR 3 YR 4 YR 5 YR 7 YR 10 YR SINCE INCEPTION

Fund Net† -13.93 -13.93 -12.79 -7.26 -4.45 -2.05 -0.73 6.76 6.79 5.93

Fund Gross† -13.44 -13.44 -10.74 -5.09 -2.22 0.25 1.60 9.28 9.33 8.48

MSCI All Country World Index -13.69 -13.69 -5.45 0.26 3.73 7.26 5.28 10.26 9.52 6.47

2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Fund Net† 4.92 -5.11 4.14 -1.99 24.91 13.47 46.03 8.00 -9.15 11.46

Fund Gross† 7.36 -2.88 6.58 0.34 27.83 16.21 49.57 10.62 -6.98 14.07

MSCI All Country World Index 20.20 -1.26 15.83 4.13 17.10 13.55 31.04 13.56 -5.05 6.79


Key market developments

Global markets took a drastic turn from where they stood at the beginning of the year.

2020 started off on a stable footing, with strong U.S. consumer data and low interest rates, but the unforeseen outbreak of COVID-19 has started to take a toll on the global economy.

Fears of a sharp recession caused by self-isolation measures intended to control spread of the virus led to significant volatility in the markets, putting an end to the bull market. Additionally, the unsuccessful OPEC+ discussion resulted in sharply lower oil prices, which put pressure on the share prices of energy companies.

Global central banks and governments quickly reacted to provide coordinated support to the economy. Both the U.S. Federal Reserve and the Bank of Canada cut interest rates by 150 basis points while federal governments announced sizable support packages.

Source: Fidelity Investments Canada ULC.


Quarterly fund performance

Investments in the consumer discretionary, industrials and information technology sectors detracted from absolute performance. In consumer discretionary, investments in Restaurant Group, Playtech, Hyundai Mobis and

Jumbo detracted the most. In other sectors, notable detractors included investments in Macerich and certain oil and gas

companies. No sector contributed materially during the quarter. Top contributors during the quarter included investments in Gilead Sciences, SPDR Gold Trust

ETF, Seria and Microsoft.

Fidelity NorthStar® Fund (Series B) returned −13.9%, net of fees, during the quarter. In comparison, the MSCI All Country World Index, broadly representing global equities, returned −13.7%.


Key drivers


One-year fund performance

Investments in the consumer staples, consumer discretionary and energy sectors detracted from absolute performance. In consumer staples, investments in Imperial Brands and Ottogi made the primary detractions. In consumer discretionary, allocations to a U.S.-based merchandise retailer and Playtech

weighed on absolute returns. In energy, exposure to certain oil and gas companies hurt performance. In other sectors, notable detractors included Macerich and DB Insurance.

Investments in materials and information technology contributed to absolute returns. In materials, an investment in SPDR Gold Trust ETF made the primary contribution. In information technology, investments in Microsoft and Argo Graphics contributed the most. In other sectors, notable contributors included WPP, Gilead Sciences and Metro.

Fidelity NorthStar Fund (Series B) returned −12.8%, net of fees, for the one-year period. The MSCI All Country World Index, broadly representing global equities, returned −5.4% (in Canadian dollar terms).


Key drivers


Positioning and outlook Portfolio co-manager Dan Dupont is optimistic about the heightened volatility in global markets

because it offers opportunities to buy great companies at more attractive prices. He notes that there are significant valuation dispersions in the market, which have widened recently.

Investors have been seeking shelter in previous winners, most notably in large-capitalization technology companies. Dan does not believe this leadership is sustainable over the long term, however. Amid the heightened volatility, he has been finding opportunities across sectors and regions.

Portfolio co-manager Joel Tillinghast believes that, historically, macro events like the current pandemic usually result in stocks reacting correctly from a direction standpoint but overreacting from a magnitude perspective. If this is the case, he may find more opportunities to buy stocks he likes at cheaper prices. But this will depend on his assessment of risk and reward and on how changes in share price compare with changes in fundamentals.

Joel is staying rational and prudent, vetting all options before buying or selling. He continues to let valuation and company fundamentals be the compass for his investment decisions.

Portfolio co-manager Kyle Weaver tries not to predict macro factors and tends to avoid investments that depend on macro events. Amid the current heightened uncertainty, he is constantly assessing the Fund’s holdings and is actively looking for new investment opportunities. Currently, he does not believe the secular trends within the portfolio have been disrupted by the pandemic and that the long-term outlook of these companies remains attractive.



Sector attribution 3-months ending March 31, 2020

Source: Fidelity Investments Canada ULC. Returns are for Series B, net of fees, in Canadian dollars. Past performance is no guarantee of future results. Percentages may not sum to totals due to rounding.

Sector Attribution Weight (%) Cumulative Return(%) Absolute Contribution (bps)

Multi-Sector 0.1 4.6 2Utilities 1.1 -7.8 -8Materials 4.4 -8.0 -28Real Estate 0.8 -57.9 -59Health Care 12.9 -5.3 -68Communication Services 8.8 -15.1 -131Consumer Staples 11.4 -12.4 -140Energy 2.5 -41.5 -141Financials 4.4 -31.4 -142Information Technology 19.0 -8.9 -155Industrials 11.1 -16.1 -179Consumer Discretionary 16.3 -21.3 -345Total Primary Assets 92.8 -1394Cash 7.0 61

Currency 0.1 4

Expenses & Other -64

Total Fund 100.0 -1393Fund Return -1393


Sector attribution 1-year ending March 31, 2020

Source: Fidelity Investments Canada ULC. Returns are for Series B, net of fees, in Canadian dollars. Past performance is no guarantee of future results. Percentages may not sum to totals due to rounding.

Sector Attribution Weight (%) Cumulative Return(%) Absolute Contribution (bps)

Materials 6.6 0.4 48Information Technology 13.7 4.6 39Multi Sector 0.0 4.6 2Health Care 11.9 0.3 2Communication Services 7.7 0.1 -13Utilities 0.8 -23.4 -20Real Estate 0.7 -71.7 -79Industrials 9.8 -9.5 -107Financials 6.6 -27.9 -113Energy 2.1 -51.9 -180Consumer Discretionary 14.5 -21.5 -341Consumer Staples 13.2 -24.7 -355Total Primary Assets 87.5 -1117Cash 12.3 52

Currency 0.1 3

Expenses & Other 0.1 -217

Total Fund 100.0 -1279Fund Return -1279


Fidelity NorthStar® FundGeographic allocation, as at March 31, 2020


Fund (%)

United States 34.6

Japan 19.3

South Korea 10.4

China 5.4

United Kingdom 4.6

France 3.0

Taiwan 2.8

Germany 1.8

Canada 1.6

Netherlands 1.4

India 1.2

Other 13.9

Total 100.0


Fidelity NorthStar® FundTop ten holdings, as at March 31, 2020


SECURITY INDUSTRYOttogi Food ProductsImperial Brands TobaccoMicrosoft SoftwareGilead Sciences BiotechnologyItochu Corp Trading Companies & DistributorsSeria Multiline RetailAmazon.com Internet & Direct Marketing RetailAnthem Health Care Providers & ServicesSimplo Technology Electronic Equipment, Instruments & ComponentsFukuda Denshi Co. Health Care Equipment & Supplies% of Top 10 Holdings 18.5Total Holdings 628


Fidelity NorthStar® FundPortfolio characteristics, as at March 31, 2020


FUND

P/E (1 year historical) 12.4

P/E (1 year forecast) 11.4

Price/Book 1.2

ROE (5 year average) 11.1

Earnings Growth Rate (5 year average) 8.5

Earnings Growth Rate (1 year forecast) -3.1

Dividend Yield 3.4

Weighted Average Market Cap (B) $137.9


Fidelity NorthStar® FundHistorical risk measures1, 3-years ending March 31, 2020

Source: Fidelity Investments Canada ULC. Past performance is no guarantee of future results.1 Based on gross fund returns* Hurdle rate is zero or excess return, whichever is lower

FUND MSCI All Country World Index

Annualized Standard Deviation 8.38% 11.25%

Sharpe Ratio -0.43 0.21

Downside Volatility* 4.66% -

Annualized Tracking Error 5.24 -

Annualized Information Ratio -1.14 -

Beta 0.67 -


APPENDIX


Investment process

Stock selection will be the key driver of performance as no adherence will be paid to any formal benchmark, reflective of the go-anywhere Fund mandate. Joel Tillinghast and Daniel Dupont retain the ability to invest in securities anywhere in the world.

Portfolio risk is minimized primarily at the level of stock selection. Individual position sizes will be kept small in an effort to diversify away any significant idiosyncratic risk.

In addition to interacting on an informal basis, the portfolio managers attend a formal allocation meeting on a monthly basis. In this meeting, they discuss the relative attractiveness of investment opportunities in the different regions of the world. Based on their discussions, they decide which of the two can most effectively deploy the cash flowing into the Fund during that time period.

The Fund is constructed using pure fundamental “bottom up” stock-picking process. The portfolio managers select stocks both independently and in consultation.

Beyond the top level allocation of assets to the two individual portfolio managers, regional and sector allocation are almost exclusively the result of stock selection activities. Regular discussions on portfolio holdings and investment decisions ensure that the stocks held are the most likely to exhibit characteristics consistent with the mandate of the Fund.

Investment process


Investment process

Bottom-up, fundamental company analysis is the primary driver of portfolio construction

Employs a value oriented style by aiming to purchase stocks at significant discounts

Looks for strong companies with unrealized growth potential trading at discounted prices

Highly values quality management with a strong and consistent track record of effective execution

Looks for stocks that will deliver high return on capital over time, with long-term sustainable businesses, that are trading at low valuation multiples

Number of holdings typically between 20-50 names and will typically have low turnover; position size is a function of conviction and is considered in relative terms.

Assesses relative value among stocks on the basis of relative upside potential and downside risk

Buys/sells purely a function of relative valuation and company fundamentals

Daniel Dupont – Process overview


Investment process

Because of his focus on discounted valuations relative to intrinsic value, most investment theses on the companies in which he invests tend to take time to play out.

Valuations assessment is focused on the balance sheet and income statement. Joel Tillinghast aims to seek out companies with little or no debt and primarily tangible assets. He also looks for companies that are growing faster than their peers. His evaluation process involves testing for quality of earnings, consistency of earnings, and stability of revenue. The ability of management to execute successfully on sound strategy is a key consideration in assessing the value of a company as well.

Key factors that are considered in the valuation process include:

Discounted valuations Management quality Low debt-to-equity ratios High margin businesses Niche products/services and market leadership with strong evidence of a sustainable

competitive advantage High levels of free cash flow Business models that target repeat or habitual purchases or that are based on repeatable

fee-generating activities

Joel Tillinghast – Process overview


Investment process

Looking for good companies that can be owned for years or decades and are extremely cheap on a 3-7 year view of earnings.

U.S. focused with flexibility to seek investments globally

Seeks to buy companies with:

Well positioned industries or niches Secular tailwinds Ability to build or unlock shareholder value Revenue that is growing and durable Profit margins that are stable or improving Above-average capital stewardship Valuation that is reasonable, or reflects skepticism or misunderstanding

Kyle Weaver – Process overview


Important notice

For advisor use only. No recipient is authorized to pass this communication on to any other person whatsoever or reproduce it by any means without the prior written consent of Fidelity.

Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in mutual funds and ETFs. Please read the mutual fund or ETF’s prospectus, which contains detailed investment information, before investing. The indicated rates of return are historical annual compounded total returns for the period indicated including changes in unit value and reinvestment of distributions. The indicated rates of return do not take into account sales, redemption, distribution or option charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds and ETFs are not guaranteed. Their values change frequently, and investors may experience a gain or a loss. Past performance may not be repeated.

Effective November 6, 2006 Fidelity introduced a 5% T-SWP and created Series T5 (“DSC,“ “LL,” “LL2”) and S5 (“ISC”). The Series name for T-SWP 8% changed to T8 (“DSC,” “LL,” “LL2”) and S8 (“ISC”).

The returns shown are used to illustrate the effects of the compound growth rate and are not intended to reflect future values of the fund or returns on investment in any fund.

Any reference to a company is for illustrative purposes only; it is not a recommendation to buy or sell nor is it necessarily anindication of how the portfolio of any Fidelity Fund is invested. The breakdown of fund investments is presented to illustrate the way in which a fund may invest, and may not be representative of a fund’s current or future investments.

© 2020 Fidelity Investments Canada. All rights reserved. Fidelity Investments is a registered trademark of Fidelity Investments Canada.

The presenter is not registered with any securities commission and therefore cannot provide advice regarding securities.


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