By Emily Lai
The Fed has kept things steady last week keeping the benchmark interest rate near zero. Fidelity believes that was a wise decision because of the uncertainty of many economies in the world, especially the emerging markets. The firm is not making strategic changes in portfolios but, given the volatility in the market, has adopted a new risk strategy for new funds.
Andrew Wells, Global Chief Investment Officer, Fixed Income at Fidelity Worldwide Investment, says the market has “walked ahead of the Fed.” “The strong dollar and the market sell-off have already been creating tightening results,” he says. “The Fed has lost control of the monetary condition now. They do not want to make aggressive decisions that would drag down the economy and cause problems in the international market.”
Although not taking drastic strategic changes in the fixed income portfolio, Wells says they have adopted the equal risk distribution approach in new funds and are educating investors on not selling their assets at times of volatility. He shares that they are running flat in fixed income portfolios with no massive long or short positions.
Dominic Rossi, Global Chief Investment Officer, Equities at Fidelity Worldwide Investment agrees that the Fed should not start tightening too soon. “As another wave of deflation washes over global markets, the US and UK monetary authorities should sit on their hands and postpone any planned tightening,” he says. “Tightening too soon would harm emerging markets and intensify the drag on global growth and equities market would be affected.”
Rossi suggests looking for equity income for the time being, noting that there are still a lot of large cap companies giving good payout during market downturns, with preference in the UK and US markets. “In this deflationary situation, investors would be wise to avoid highly leveraged stocks at all costs, and to focus on cash-generative companies that have a history of sound capital allocation while have the ability to distribute growing dividends to their shareholders,” he says.
He also says they are keeping the strategies of their equity portfolios steady as Fed’s decision was not a surprise, and it did not shake their confidence in the leaders in equities markets. He believes the bright spot in equities would lie in companies with an innovation theme, like healthcare, technology and media; but suggests investors to wait till volatility subsides before entering the market. He added that his strategies would be quite different if commodity prices go up, but expect it to be a very long term scenario. BM