FidelityConnects: Beyond the benchmark: Finding edge in alternatives

00:01.001 --> 00:06.573
<b>Subtitles are AI Generated</b>

00:06.573 --> 00:08.441
Hello, and welcome to Fidelity Connects.

00:08.441 --> 00:12.479
I'm Pamela Richie. This month marks two years since the launch of Fidelity

00:12.479 --> 00:15.015
Canadian Long/Short Alternative Fund.

00:15.015 --> 00:18.451
At the time it faced what seemed like an uphill climb.

00:18.451 --> 00:22.222
Canada just wasn't a priority for many investors.

00:22.222 --> 00:24.891
But oh, how the tables have turned.

00:24.891 --> 00:28.828
How has the fund adapted, what's changed in positioning, and

00:28.828 --> 00:32.766
where is our next guest finding opportunity in today's market?

00:32.766 --> 00:37.037
Joining us here today to break down her outlook for Canada and how her research

00:37.037 --> 00:41.741
team is navigating this new landscape is portfolio manager, Reetu Kumra.

00:41.741 --> 00:43.676
Warm welcome to you. Great to have you here today.

00:43.676 --> 00:44.544
Thank you for having me.

00:44.544 --> 00:44.978
Two years, eh?

00:44.978 --> 00:46.913
It's been two years.

00:46.913 --> 00:47.313
Wow.

00:47.313 --> 00:48.281
Feels like a lifetime.

00:48.281 --> 00:52.385
What was happening? I mean, we were still caught in very high

00:52.385 --> 00:56.389
interest rates, the cutting of rates was sort of still just

00:56.389 --> 00:59.092
in nascent times. It was very different.

00:59.092 --> 01:00.627
How different was it for Canada?

01:00.627 --> 01:04.631
Oh, very different. Canada was the market that everyone loved to not like.

01:04.631 --> 01:08.535
Again, like you said, how the tables have turned.

01:08.535 --> 01:11.538
My goodness, it is sort of fascinating to see all this.

01:11.538 --> 01:15.675
This is a long/short fund and it's been introduced to a lot of investors a

01:15.675 --> 01:18.545
few times at this stage in lots of different ways when you've been speaking,

01:18.545 --> 01:23.283
but it's a fund that is created to

01:23.283 --> 01:27.454
traverse market moments where things might be falling off a cliff.

01:27.454 --> 01:30.190
We have seen that over the course of the last few weeks, certainly.

01:30.190 --> 01:34.060
I wonder if you can just take us there on what the fund's been doing, what

01:34.060 --> 01:37.363
you're able to do in moments like this.

01:37.363 --> 01:41.568
Absolutely. If I think about what's happened over the last couple of years,

01:41.568 --> 01:44.504
let's take a step back and think about 2025.

01:44.504 --> 01:48.007
We started off the year, it was very much risk-off.

01:48.007 --> 01:53.246
The focus was the tariffs and reshoring and lack of immigration.

01:53.246 --> 01:57.283
Then Liberation Day happened and a few weeks later there was

01:57.283 --> 02:01.654
a complete 180 in the market where it became risk-on and the focus was,

02:01.654 --> 02:04.724
okay, wait a second, the tariffs aren't going to be as bad as we initially

02:04.724 --> 02:09.095
thought. The focus then became AI,

02:09.095 --> 02:13.833
monetary and fiscal stimulus, and we were off to the races.

02:13.833 --> 02:18.071
How did Canada fit into that story? Canada, of course, was very

02:18.071 --> 02:21.608
much part of the reversals that we saw last year.

02:21.608 --> 02:24.978
I guess if you think about what's happened in the broader market as we've

02:24.978 --> 02:29.082
turned into 2026 there's a few themes that have really emerged where

02:29.082 --> 02:30.884
Canada fits.

02:30.884 --> 02:33.953
The first theme is the continuation of the AI trade.

02:33.953 --> 02:37.957
Here in Canada there are not many ways to play the AI trade like you

02:37.957 --> 02:42.729
can in the US, but there are ways, whether it's through hardware,

02:42.729 --> 02:46.699
power names, nuclear, uranium, some industrials

02:46.699 --> 02:52.172
that have data centre buildouts or a relationship with AI.

02:52.172 --> 02:54.073
That's not the focus in 2026.

02:54.073 --> 02:58.578
The focus is now on what AI is going to disrupt.

02:58.578 --> 03:02.849
There's a question of the terminal growth rate of some of these businesses.

03:02.849 --> 03:06.953
We saw it with software and then it moved on to information

03:06.953 --> 03:11.591
services, private alts, commercial real estate,

03:11.591 --> 03:15.962
you name it, I'm just naming off a few, like exchanges.

03:15.962 --> 03:19.232
That's been the focus.

03:19.232 --> 03:22.802
We're trying to navigate through that.

03:22.802 --> 03:27.073
Building on that AI theme, another theme that we're really seeing is the rising

03:27.073 --> 03:29.676
of geopolitics.

03:29.676 --> 03:31.344
What has that done?

03:31.344 --> 03:36.115
It's created a CapEx cycle and, as a result, a hard asset cycle.

03:36.115 --> 03:40.553
If you think about the AI data centre buildout, you need CapEx for that.

03:40.553 --> 03:44.224
Unfortunately, borders are going up and so there is more infrastructure

03:44.224 --> 03:49.596
buildout. You're seeing more in the way of trade diversification.

03:49.596 --> 03:53.700
You're seeing critical minerals, a buildup of inventory,

03:53.700 --> 03:56.336
and more spent on defence.

03:56.336 --> 03:59.372
Again, these are all drivers of this hard asset cycle.

03:59.372 --> 04:03.376
Another thing that we're seeing is de dollarization and that's

04:03.376 --> 04:06.279
precisely why we've seen gold gap up the way we have.

04:06.279 --> 04:10.316
Whether it is the diversification away from the US dollar, central

04:10.316 --> 04:14.354
bank buying, we've seen the monitoring of fiscal stimulus,

04:14.354 --> 04:17.223
questions about central bank independence and debt levels.

04:17.223 --> 04:21.294
Those are the fundamentals for the dedollarization story, are they all still

04:21.294 --> 04:25.298
in place? I mean, they were largely the fundamentals last

04:25.298 --> 04:28.101
year and the reason for the gold run-up, they're still there.

04:28.101 --> 04:31.037
I think that there's a case for it.

04:31.037 --> 04:33.006
Gold is one of those interesting ...

04:33.006 --> 04:35.975
it's not a commodity, it's a currency, so it's like you can do this

04:35.975 --> 04:38.111
supply-demand model and figure out a price target.

04:38.111 --> 04:42.148
It's just you have to understand what the drivers are and what that really

04:42.148 --> 04:46.519
means for whether it can directionally go up or directionally go down.

04:46.519 --> 04:50.490
These themes are really against a backdrop of the economy is

04:50.490 --> 04:52.992
actually doing pretty okay.

04:52.992 --> 04:56.863
Down south we're expecting GDP growth of 3% to 4%.

04:56.863 --> 05:00.967
Here, we're kind of muddling through but PMIs are above 50, both

05:00.967 --> 05:05.605
manufacturing and service, for the first time in quite a few years.

05:05.605 --> 05:09.342
We're seeing inflation that's tame.

05:09.342 --> 05:12.245
The consumer, the K-shaped consumer, is hanging in there.

05:12.245 --> 05:16.015
Monetary and fiscal, easy conditions.

05:16.015 --> 05:19.419
We're lapping the tariff news and so things...

05:19.419 --> 05:22.422
We're lapping the tariff news. I feel like you've got to brand that.

05:22.422 --> 05:23.690
We are though, it's amazing.

05:23.690 --> 05:27.527
We are and that's something to keep in mind.

05:27.527 --> 05:31.097
The market's expecting double digit to mid-teens earnings growth both in Canada

05:31.097 --> 05:33.933
and the Us so it seems pretty good.

05:33.933 --> 05:36.002
What is our team doing in this context?

05:36.002 --> 05:38.871
Your research team is incredible. Let's just talk about this a little.

05:38.871 --> 05:43.009
You've told us before the genesis of this fund is really

05:43.009 --> 05:44.844
the incredible research team.

05:44.844 --> 05:48.781
Actually, at one point you were chucking out, weeding through,

05:48.781 --> 05:51.384
and now you're using it, ultimately, to construct this fund.

05:51.384 --> 05:53.019
Just remind us of the team you've got there.

05:53.019 --> 05:56.989
Our team is fantastic. It's a fantastic group of investors and I have

05:56.989 --> 06:01.194
a privilege of just building, mentoring, developing this team,

06:01.194 --> 06:04.964
along with my co-DOR, Steve MacMillan.

06:04.964 --> 06:08.735
These individuals really have the fire to come in to work every day and they're

06:08.735 --> 06:13.039
just looking to be the best analysts in their respective sector

06:13.039 --> 06:17.810
in Canada so they can generate those excess returns for our funds.

06:17.810 --> 06:21.781
What this means is this team, they cover roughly 25 securities in

06:21.781 --> 06:24.917
their respective sectors. They're on their sector for about three to four years

06:24.917 --> 06:28.354
so they're really in-house experts on their sectors.

06:28.354 --> 06:31.391
They're just navigating everything.

06:31.391 --> 06:35.461
They are looking at industry analysis, company analysis, dissecting

06:35.461 --> 06:39.332
balance sheets, modelling out profitability and cash flows, meeting with

06:39.332 --> 06:44.170
management teams, going to conferences, looking at valuation,

06:44.170 --> 06:47.974
talking to experts, talking to peers, talking to competitors.

06:47.974 --> 06:51.244
They're putting all of this analysis into ...

06:51.244 --> 06:54.480
they take this mosaic and they create a thesis and they're constantly

06:54.480 --> 06:57.683
monitoring this thesis for change.

06:57.683 --> 07:01.254
As we've seen there's been a lot of change in the last little while so real

07:01.254 --> 07:05.291
time in the past several weeks this team has been on the ball where they have

07:05.324 --> 07:09.562
been looking at what companies can be disrupted and

07:09.562 --> 07:13.533
which companies we can potentially go short, and then

07:13.533 --> 07:17.870
which companies have been oversold or overdone, or which

07:17.870 --> 07:20.606
companies have just been thrown out with the bathwater.

07:20.606 --> 07:24.710
We're trying to navigate this volatility and as a result

07:24.710 --> 07:28.247
actively changing positioning as a result.

07:28.247 --> 07:32.485
That's amazing. It just seems like such an incredible moment to have this type

07:32.485 --> 07:36.422
of fund as a tool to go through this moment because you really

07:36.422 --> 07:39.292
are seeing, I mean, some extraordinary moves.

07:39.292 --> 07:43.463
Maybe just speak a bit to what levers you're able to pull here.

07:43.463 --> 07:47.600
I think what's so great is to have such a large team.

07:47.600 --> 07:51.771
That allows every individual, every analyst

07:51.771 --> 07:54.974
on the team, to go knee-deep in their sector.

07:54.974 --> 07:59.045
When you know your sector so well during times of volatility such as the

07:59.045 --> 08:03.216
last few years but particularly the last months, it's so easy

08:03.216 --> 08:05.918
to make decisions quickly.

08:05.918 --> 08:10.089
As we know, time is money so it's really helpful to have such a large team

08:10.089 --> 08:11.457
navigating these markets.

08:11.457 --> 08:15.461
It's incredible. The overall theme to Canada

08:15.461 --> 08:19.499
last year, and really always, has been resources, along

08:19.499 --> 08:22.235
with banks probably but that's sort of what we do.

08:22.235 --> 08:25.338
That's what we do well. What kind of moment is this for Canada?

08:25.338 --> 08:28.207
We saw the run-up in the TSX last year.

08:28.207 --> 08:32.478
It was largely gold, resource-based, where does it go from here?

08:32.478 --> 08:36.449
It's so interesting, and I love that question. A few years ago, like

08:36.449 --> 08:40.419
I mentioned earlier, everyone loved to not like Canada, and

08:40.419 --> 08:44.357
for good reason. We have a levered consumer, we had

08:44.357 --> 08:48.861
the wall of mortgage maturities that were coming due and resetting higher,

08:48.861 --> 08:52.131
lack of productivity, anemic growth.

08:52.131 --> 08:55.568
I think Canada has gone through a moment similar to how we think about stocks

08:55.568 --> 08:59.238
where things have went from bad to less bad.

08:59.238 --> 09:03.175
I think the catalyst for the change has been what's happened in the

09:03.175 --> 09:08.214
world in terms of deglobalization, also policy change just here domestically.

09:08.214 --> 09:12.418
You've heard me say this before but I think of the TSX as not necessarily

09:12.418 --> 09:14.854
a stock market but a market of stocks.

09:14.854 --> 09:19.091
The reason that we saw the 31%, 32% performance

09:19.091 --> 09:23.829
last year was because we have

09:23.829 --> 09:28.334
about 36% to 37% of the benchmark that's in resources,

09:28.334 --> 09:32.738
which includes 15% that's in gold, and these businesses

09:32.738 --> 09:36.375
aren't the businesses of the past. They're generating a tremendous amount of

09:36.375 --> 09:40.680
free cash flow, the capital allocation frameworks are much better, the

09:40.680 --> 09:43.883
balance sheets are cleaned up, so they are better businesses than what we've

09:43.883 --> 09:47.386
seen from the last 10 to 15 years.

09:47.386 --> 09:50.923
Then we have about 40% of the benchmark that is roughly interest rate

09:50.923 --> 09:56.028
sensitives. These stocks do well in a monetary easing environment.

09:56.062 --> 09:56.963
Which is what we got.

09:56.963 --> 10:01.000
Exactly. The rest of it

10:01.000 --> 10:03.536
is effectively just stock picking businesses.

10:03.536 --> 10:07.607
We have consumer, tech,

10:07.607 --> 10:09.475
industrials, health care.

10:09.475 --> 10:13.412
Those are the ones where you see a variety of different businesses, a lot

10:13.412 --> 10:17.817
of dispersion. You get your early cyclicals in the consumer, in the auto,

10:17.817 --> 10:22.221
some industrials. You get your quality compounders with the

10:22.221 --> 10:25.992
dollar stores. You get your defensive names in the grocers.

10:25.992 --> 10:29.195
You get a number of different businesses that you can just stock pick your way

10:29.195 --> 10:32.698
through. That's really what we do best.

10:32.698 --> 10:36.669
You approach this sort of with super sectors and then within that

10:36.669 --> 10:41.540
sometimes you'll have, like, if we went to resources, broadly speaking,

10:41.540 --> 10:45.311
within that speak a bit to the positioning and sort of the material side.

10:45.311 --> 10:48.114
We've got lots within that.

10:48.114 --> 10:52.218
There's also energy. Just talk a little bit about how you go in via the

10:52.218 --> 10:55.788
super sector and then kind of position within that.

10:55.788 --> 10:59.859
From a portfolio construction standpoint what we do

10:59.892 --> 11:04.063
is we try to neutralize the super sector.

11:04.063 --> 11:07.867
A reminder, the super sectors being resources, interest rate sensitives,

11:07.867 --> 11:09.869
consumer, and industrials.

11:09.869 --> 11:12.638
We let the stock picking generate the alpha.

11:12.638 --> 11:16.542
That way we have that alignment to the market but we allow the stock picking to

11:16.542 --> 11:18.277
do the work.

11:18.277 --> 11:21.747
As a result, I consider this more of an all ideas fund.

11:21.747 --> 11:26.118
We have roughly between 120 to 190 positions

11:26.118 --> 11:28.020
at any given time.

11:28.020 --> 11:32.024
Within that between 40 and 80 would be short.

11:32.024 --> 11:36.062
It's very diversified

11:36.062 --> 11:38.264
on the short book and the long book.

11:38.264 --> 11:42.368
As I was mentioning, the way we like to generate the alpha is through

11:42.368 --> 11:46.272
the stock picking within the resources. If I talk about where our positioning

11:46.272 --> 11:51.243
is, starting off with resources, it's

11:51.243 --> 11:53.679
positioned materials over energy.

11:53.679 --> 11:57.917
Within materials, specifically copper, lumber and gold

11:57.917 --> 12:01.921
over energy. If I kind of just take us

12:01.921 --> 12:05.758
through each of those commodities, gold, I mean, I think I talked about that

12:05.758 --> 12:06.592
already in terms of...

12:06.592 --> 12:09.595
To some degree the market has voted on that one.

12:09.595 --> 12:13.399
Yes, we've seen a massive gap up here.

12:13.399 --> 12:17.470
All those themes I talked about earlier are still in existence.

12:17.470 --> 12:22.475
With copper, it's interesting because

12:22.475 --> 12:25.444
the supply side of copper has ...

12:25.444 --> 12:29.115
there's a bit that's come offline just given closures whether it's for

12:29.115 --> 12:32.852
geopolitical risks or just execution risks.

12:32.852 --> 12:37.289
We've had quite a bit of supply come off but on the demand side copper's

12:37.289 --> 12:40.659
considered a critical mineral. Going back to the geopolitical risk, there has

12:40.659 --> 12:43.462
been a lot of inventory buildup around the world for copper.

12:43.462 --> 12:47.066
Sitting in warehouses inside the borders of countries, not moving international

12:47.066 --> 12:49.068
trade.

12:49.068 --> 12:53.305
Exactly. This is at a time, copper is doing well at a time where China

12:53.305 --> 12:57.743
has been pretty anemic. China's typically 50% of the demand

12:57.743 --> 13:02.681
so if China were to ever invest

13:02.681 --> 13:06.952
more infrastructure and kind of be on a cyclical upswing

13:06.952 --> 13:10.556
you might see more demand for copper.

13:10.556 --> 13:13.459
For lumber, lumber is one of those stories where...

13:13.459 --> 13:15.361
It's always gotten caught in trade.

13:15.361 --> 13:18.864
I mean, you sort of leave it as just always caught in trade.

13:18.864 --> 13:22.701
It has been, it absolutely has been, and as a result there's been a lot of

13:22.701 --> 13:25.204
capacity that's been shut off.

13:25.204 --> 13:29.708
You have some supply coming off and then on the demand side,

13:29.708 --> 13:33.846
one thing that we do know about the Trump administration is they're very

13:33.846 --> 13:38.717
laser focused on affordability, particularly housing affordability.

13:38.717 --> 13:42.922
Just more recently, a few weeks ago, they had announced that

13:42.922 --> 13:49.161
they're looking to stop institutional buying of single-family homes.

13:49.161 --> 13:52.531
Let's see what ends up happening, whether they do anything with mortgages.

13:52.531 --> 13:56.368
We know that that is a huge concern of theirs, especially heading into the

13:56.368 --> 13:59.772
midterms. We're also in a monetary easing condition.

13:59.772 --> 14:03.843
More interestingly, these stocks have just been left for dead.

14:03.843 --> 14:07.613
Some of these stocks are discounted to book and they have net cash balance

14:07.613 --> 14:11.550
sheets and so you're just paid to wait.

14:11.550 --> 14:14.353
Even though they've seen a big rise recently they're still ...

14:14.353 --> 14:17.189
because they had been down sort of in the gutter.

14:17.189 --> 14:20.593
You're just paid to wait. You don't know what the catalyst is or when the

14:20.593 --> 14:24.029
catalyst is but you know it will come at some point and you have a balance

14:24.029 --> 14:26.665
sheet that can withstand this.

14:26.665 --> 14:30.903
Then you compare that to energy, oil's actually

14:30.903 --> 14:33.739
done really well year-to-date but last year was down however the stocks

14:33.739 --> 14:37.743
continued to rise. Again, going back to the theme that I mentioned earlier, a

14:37.743 --> 14:39.879
lot of that is just geopolitical risks.

14:39.879 --> 14:43.382
But there is still a lot of oil out there so the preference is materials over oil.

14:43.382 --> 14:46.585
Hello, investors. We'll be back to the show in just a moment.

14:46.585 --> 14:49.922
I wanted to share that here at Fidelity, we value your opinion.

14:49.922 --> 14:52.958
Please take a few minutes to help us shape the future of Fidelity Connects

14:52.958 --> 14:57.429
podcasts. Complete our listener survey by visiting fidelity.ca/survey,

14:57.429 --> 14:59.798
and you could win one of our branded tumblers.

14:59.798 --> 15:03.102
Periodic draws ending by March 30th, 2026.

15:03.102 --> 15:06.705
And don't forget to listen to Fidelity Connects, the Upside, and French

15:06.705 --> 15:10.743
DialoguesFidelity podcasts available on Apple, Spotify, YouTube, or wherever

15:10.743 --> 15:13.946
else you get your podcasts. Now back to today's show.

15:13.946 --> 15:17.783
At this point but at some point you would be positioned ultimately, or you

15:17.783 --> 15:21.220
would have the choice with this fund, obviously, to take a look at...

15:21.220 --> 15:24.456
Absolutely. And it depends on what we think internally in terms of our

15:24.456 --> 15:28.994
research, in terms of where we like the

15:28.994 --> 15:32.097
stocks on the long side versus the short side.

15:32.097 --> 15:35.301
That's resources. I can get into interest rate sensitives.

15:35.301 --> 15:37.970
I was going to ask you about the financials, let's go into the interest rate

15:37.970 --> 15:39.738
story for sure.

15:39.738 --> 15:44.209
Within interest rate sensitives, again, it's a very large part of the market,

15:44.209 --> 15:47.646
the way we're positioned is diversifieds and utilities are overweight.

15:47.646 --> 15:49.148
Diversified financials?

15:49.148 --> 15:51.016
Yes, diversified financials and utilities are overweight.

15:51.016 --> 15:55.354
We're fairly neutral telcos and REITs and then

15:55.354 --> 15:57.456
we're underweight the banks.

15:57.456 --> 16:00.025
They've had their run.

16:00.025 --> 16:04.096
Looking at the diversified financials,

16:04.096 --> 16:07.066
very much a mix of businesses so you can kind of stock pick your way through

16:07.066 --> 16:11.036
it. It's important to because it has been caught up in the eye of the storm

16:11.036 --> 16:12.171
of AI disruption...

16:12.171 --> 16:16.008
Who invested in software too much but maybe it's been overdone, the reaction,

16:16.008 --> 16:16.775
obviously.

16:16.775 --> 16:19.011
Our research team is looking at that as we speak.

16:19.011 --> 16:22.047
We're just stock picking our way through it.

16:22.047 --> 16:25.884
They tend to be good businesses, know high single digit, low double digits EPS,

16:25.884 --> 16:28.654
not too expensive from  a valuation perspective.

16:28.654 --> 16:31.590
That's kind of a stock picking type sector.

16:31.590 --> 16:37.429
Move on to the utilities, utilities are just dependable businesses, mid-single

16:37.429 --> 16:39.732
digit to high single digit EPS growth.

16:39.732 --> 16:44.003
Valuation isn't too demanding but you also have an AI kicker where there's

16:44.003 --> 16:48.273
infrastructure buildout with data centres on the power side with independent

16:48.273 --> 16:51.744
power producers. You have that AI kicker.

16:51.744 --> 16:54.546
We're overweight those two sectors.

16:54.546 --> 16:57.683
Neutral telcos, there's been a lot happening in the telcos.

16:57.683 --> 16:59.385
They're trying to get out of debt. They are doing it.

16:59.385 --> 16:59.918
They're still...

16:59.918 --> 17:01.687
They're trying, they're trying.

17:01.687 --> 17:05.924
It's been a tough market for several years

17:05.924 --> 17:08.861
now just given increasing competition.

17:08.861 --> 17:09.395
Less new adds too [crosstalk].

17:09.395 --> 17:13.198
Exactly, because of immigration, lack of immigration.

17:13.198 --> 17:17.436
These are indebted balance sheets

17:17.436 --> 17:21.140
so we're watchful of that but we're kind of stock picking our way through that

17:21.140 --> 17:21.340
one.

17:21.340 --> 17:25.377
When you watch telcos, there's lots of different reasons within

17:25.377 --> 17:28.914
there and there's lots of different lines of business within there, but one of

17:28.914 --> 17:32.885
the pieces of the story, of the debt story, is that things like fibre optics

17:32.885 --> 17:36.255
and running the internet was put on their shoulders, and that worked out very

17:36.255 --> 17:40.592
well for a while, but there were things that were overdone and

17:40.592 --> 17:43.896
perhaps too much money was spent there.

17:43.896 --> 17:45.998
I mean, there are a lot of people who will connect that to what we're seeing

17:45.998 --> 17:50.002
right now, the data centre buildout. Do you see analogies there.

17:50.002 --> 17:54.006
I'm sure it's something that you watch as an overly funded area

17:54.006 --> 17:56.909
that we're not quite sure how it's going to turn out.

17:56.909 --> 18:01.080
I think we've had a lot of CapEx put into fibre in

18:01.080 --> 18:05.717
general in Canada. I think the story about the telcos is about

18:05.717 --> 18:10.055
... these are highly levered businesses,

18:10.055 --> 18:14.927
capital intensive businesses, the top line is challenged.

18:14.927 --> 18:19.364
We've seen one dividend cut in the sector.

18:19.364 --> 18:23.368
We're watchful of that sector because that one has been so bad for

18:23.368 --> 18:28.874
so long so when will it get less bad, that could be a powerful story.

18:28.874 --> 18:32.077
We're very focused on that but for now we're neutral.

18:32.077 --> 18:37.683
And then banks underweight. The banks have been fine,

18:37.683 --> 18:40.719
they've been great businesses. They are great businesses, they're well

18:40.719 --> 18:44.556
capitalized.

18:44.556 --> 18:47.926
Fee-based businesses are doing extremely well, whether it's trading, wealth

18:47.926 --> 18:51.830
management.

18:51.830 --> 18:56.235
Loan growth is a little subdued but credit is no longer necessarily a

18:56.235 --> 18:58.437
huge concern. We're kind of muddling through that.

18:58.437 --> 19:00.873
So there could be some releases of...

19:00.873 --> 19:05.110
We'll see, we'll see. For now I think we'll just muddle through that but

19:05.110 --> 19:08.780
you have to compare that to valuation so we're just trying to navigate that

19:08.780 --> 19:10.682
accordingly.

19:10.682 --> 19:15.487
That's super interesting, particularly on how you take a look at the super

19:15.487 --> 19:20.092
sectors themselves and then stock pick within that.

19:20.092 --> 19:24.229
I wonder if we can just talk a little bit about some of the other

19:24.229 --> 19:28.333
alt names. This seems like a really interesting moment for the entire

19:28.333 --> 19:31.336
structure of an alt strategy to be working.

19:31.336 --> 19:35.941
Recently, the multi-alt was launched and that was meant to

19:35.941 --> 19:38.544
take into consideration the other products that are out there.

19:38.544 --> 19:41.680
Do you want to just speak to that a little bit and, again, it's moment when

19:41.680 --> 19:43.315
you're watching markets like this.

19:43.315 --> 19:44.983
Absolutely.

19:44.983 --> 19:48.820
Jurrien Timmer has put it so well. He's talked about the 60/40 transitioning to

19:48.820 --> 19:52.925
the 60/20/20 where we have 60 equities, 20 bonds, 20

19:52.925 --> 19:56.395
alts. The multi-alt would fit right into the 20 alt.

19:56.395 --> 19:59.364
We've actually seen it prove its use case so...

19:59.364 --> 20:03.368
So it's got the products, the various long/short offerings that Fidelity has

20:03.368 --> 20:04.102
within one.

20:04.102 --> 20:08.340
Exactly. The combination of Dave Way's Long/Short, the Canadian

20:08.340 --> 20:12.477
Long/Short which we're talking about today, Brett Dley's Market Neutral, and

20:12.477 --> 20:17.716
Dan Dupont's Global Value Long/Short, as well as a small slither for Bitcoin.

20:17.716 --> 20:21.086
What we've seen since it's been launched is it's doing what it's supposed to

20:21.086 --> 20:24.823
do, where it's keeping pace with the markets on the upside and on the downside

20:24.823 --> 20:29.361
we have downside protection just given the combination of these funds.

20:29.361 --> 20:32.698
It tends to have a low correlation with the equity markets, which is exactly

20:32.698 --> 20:34.700
what it's supposed to do.

20:34.700 --> 20:39.605
That's absolutely fascinating how all that ultimately works.

20:39.605 --> 20:41.306
You mentioned Bitcoin so let's go there.

20:41.306 --> 20:44.509
Let's talk a little bit about it versus gold, possibly.

20:44.509 --> 20:47.246
This is an area of the market that you've been very interested in.

20:47.246 --> 20:51.416
It's part of, for instance, other ETF products and so on.

20:51.416 --> 20:55.220
What's the story for Bitcoin? A lot of people have been a bit worried.

20:55.220 --> 21:00.125
The market, you can see it's gone from being over 120,000

21:00.125 --> 21:05.230
to below 70. We've had quite a drawdown here.

21:05.230 --> 21:09.234
I think the interesting thing about Bitcoin is that all the

21:09.234 --> 21:13.205
drivers of Bitcoin are in play right now but Bitcoin's not

21:13.205 --> 21:16.608
working. But what you're seeing is gold is working.

21:16.608 --> 21:19.444
What are the drivers? What do you mean?

21:19.444 --> 21:23.682
If you think about Bitcoin, just taking a step back, you think about

21:23.682 --> 21:27.185
Bitcoin on the supply side. I'll just compare it to gold.

21:27.185 --> 21:31.556
Bitcoin on the supply side, the huge value proposition

21:31.556 --> 21:35.894
for Bitcoin is that we know what the inflation is for Bitcoin.

21:35.894 --> 21:38.430
Right now it's a touch under 1%.

21:38.430 --> 21:41.300
That was driven by the halving that just happened in 2024.

21:41.300 --> 21:45.671
It'll halve again in 2028

21:45.671 --> 21:50.208
so we just know what that inflation rate for Bitcoin's going to be.

21:50.208 --> 21:52.244
But with gold we don't necessarily know that.

21:52.244 --> 21:56.615
The drivers are the same for both, and that is

21:56.615 --> 21:59.318
the debasement of fiat currency.

21:59.318 --> 22:03.488
If there are concerns about fiscal debt or

22:03.488 --> 22:07.926
concerns about fiat currency, or if

22:07.926 --> 22:11.897
there's monetary or fiscal easing happening, those will all drive

22:11.897 --> 22:15.667
these alternative assets like Bitcoin and gold.

22:15.667 --> 22:19.771
Alternatively, if you think about the developing markets there's countries

22:19.771 --> 22:22.607
that have runaway inflation where you actually want to be in an alternative

22:22.607 --> 22:25.344
asset, or an alternative to fiat currency.

22:25.344 --> 22:27.379
Those are the drivers for Bitcoin and gold.

22:27.379 --> 22:31.516
Where Bitcoin and gold differ, and the reason that they're so uncorrelated as

22:31.516 --> 22:35.821
assets, one's a risk-on asset, which is Bitcoin, the other one's a risk-off

22:35.821 --> 22:39.958
asset, which is gold. Right now, as we've been talking about this hard asset

22:39.958 --> 22:46.131
cycle, it's no surprise that Bitcoin

22:46.131 --> 22:46.965
has kind of been left.

22:46.965 --> 22:49.968
That's interesting. I haven't heard talk about it that way in the sense that

22:49.968 --> 22:53.905
it's part of the services sell-off or whatever you want

22:53.905 --> 22:56.174
to call it but it's not hard asset.

22:56.174 --> 22:59.111
You can see why gold is working and Bitcoin is not necessarily working because

22:59.111 --> 23:03.081
Bitcoin, it's been thought

23:03.081 --> 23:07.352
of as highly correlated to tech.

23:07.352 --> 23:11.490
As a result, when you're seeing tech sell off here it's no surprise

23:11.490 --> 23:15.594
that Bitcoin is behaving like a risk-on asset versus gold's

23:15.594 --> 23:17.062
getting its market share right now.

23:17.062 --> 23:20.365
Is there an argument within that part of it is this so-called ...

23:20.365 --> 23:22.934
it's a terrible phrase, the baby being thrown out of the bath water, we really

23:22.968 --> 23:26.138
need to think up something else for that, but is it part of that?

23:26.138 --> 23:30.041
I mean, is there an argument that it'll find its footing, it's been overdone.

23:30.041 --> 23:34.946
I think, and I've always thought about Bitcoin from a long term perspective.

23:34.946 --> 23:39.151
It's hard to know what Bitcoin is going to do tomorrow or the next day but if

23:39.151 --> 23:42.554
you just take a step back and just think about are the supply drivers in place,

23:42.587 --> 23:44.856
are the demand drivers in places?

23:44.856 --> 23:49.094
If you believe in those supply and demand drivers I think it will have

23:49.094 --> 23:52.664
its day in the sun. At the moment it's not that.

23:52.664 --> 23:57.068
The volatility around Bitcoin is a feature of it and not necessarily a bug.

23:57.068 --> 23:59.337
That's what we're seeing right now.

23:59.337 --> 24:03.308
That's fascinating. Let's come back to sort of the story of Canada because

24:03.308 --> 24:06.478
that's what you're focusing on here.

24:06.478 --> 24:10.715
It almost sounds like when you were beginning to put this fund together in

24:10.715 --> 24:15.187
the years prior, it's two years now so we've said happy anniversary but it just

24:15.187 --> 24:18.924
bears repeating going back to that time, it was out of favour.

24:18.924 --> 24:23.061
I mean, there's no question. You would look for companies that would

24:23.061 --> 24:27.532
be out of favour, as always, assuming that at some point they'll

24:27.532 --> 24:31.870
take off. There's sort of a larger connection there

24:31.870 --> 24:33.104
it seems.

24:33.104 --> 24:37.876
That's what we do and this is why we have our analysts going in so deep.

24:37.876 --> 24:42.347
For example, right now the market has been very favourable to

24:42.347 --> 24:46.318
the out of favour from last year, the out of favour early

24:46.318 --> 24:48.820
cyclical stocks that were so cheap.

24:48.820 --> 24:52.691
Our team was very much focused on where can we find the earnings upside but

24:52.691 --> 24:54.860
also the multiple upside.

24:54.860 --> 24:58.697
You don't have any better story than that when you can get your multiple and

24:58.697 --> 25:02.067
your earnings upside. That's what our team has been laser focused on, and

25:02.067 --> 25:04.669
that's with this fund can actually capitalize on.

25:04.669 --> 25:09.174
It's incredible, actually. Do you think that all of the

25:09.174 --> 25:13.578
announcements by government, it's hard to know, again, policy,

25:13.578 --> 25:17.616
there's sort of been announcements, but to what degree do you lean into

25:17.616 --> 25:23.054
the overall story, which appears to be infrastructure, rebuilding everyone's

25:23.054 --> 25:27.359
access to resources, to energy, and being that country

25:27.359 --> 25:31.162
on the world platform to sell to the world.

25:31.162 --> 25:35.100
We've seen policy change. We've also seen pipelines being built.

25:35.100 --> 25:39.237
We have LNG Canada. There's been a real push

25:39.237 --> 25:41.306
for trade diversification.

25:41.306 --> 25:45.110
Let's see what ends up happening. These are more long cycle stories but we're

25:45.110 --> 25:49.114
watching them. If it were to play out,

25:49.114 --> 25:53.218
again, that's favourable to the hard asset cycle.

25:53.218 --> 25:56.288
And overall to this fund. What's sort of a final thought for investors, would

25:56.288 --> 26:00.292
you say, that are thinking about, I mean, we hear, the

26:00.292 --> 26:04.296
numbers are, that Canadians are still invested outside their

26:04.296 --> 26:06.698
country to an extent that maybe they want to rethink.

26:06.698 --> 26:11.236
I mean, some people say take a look at international shares, maybe just less

26:11.236 --> 26:15.440
exposure to the US, I don't know. How would you sort of put this fund to

26:15.440 --> 26:19.778
investors now who maybe still haven't pivoted back?

26:19.778 --> 26:23.982
I would say that this fund is very much just a core Canadian

26:23.982 --> 26:26.718
130/30 long/short product.

26:26.718 --> 26:31.723
It offers directional alignment to the Canadian, like the TSX,

26:31.723 --> 26:35.927
through neutralizing the super sectors, but it also allows investors

26:35.927 --> 26:40.198
to own the Fidelity research by us going long

26:40.198 --> 26:44.135
on our buy-rated names, going short on our sell-rated names, and really

26:44.135 --> 26:48.840
just capitalize on that repeatability, the accuracy

26:48.840 --> 26:53.345
and the strength of our research platform.

26:53.345 --> 26:55.747
Fantastic. Reetu Kumra, thank you so much for joining us.

26:55.747 --> 26:57.082
Happy anniversary on the fund.

26:57.082 --> 26:58.183
Thank you. Thank you for having me.

26:58.183 --> 26:59.985
Delighted to have you here.

26:59.985 --> 27:02.621
Thanks for watching or listening to the Fidelity Connects

27:02.621 --> 27:06.925
podcast. Now if you haven't done so already, please subscribe to Fidelity

27:06.925 --> 27:10.295
Connects on your podcast platform of choice.

27:10.295 --> 27:13.131
And if you like what you're hearing, please leave a review or a five-star

27:13.131 --> 27:17.102
rating. Fidelity Mutual Funds and ETFs are available by working with

27:17.102 --> 27:20.472
a financial advisor or through an online brokerage account.

27:20.472 --> 27:24.175
Visit fidelity.ca/howtobuy for more information.

27:24.175 --> 27:28.013
While on Fidelity.ca, you can also find more information on future live

27:28.013 --> 27:32.150
webcasts. And don't forget to follow Fidelity Canada on YouTube, LinkedIn,

27:32.150 --> 27:33.451
and Instagram.

27:33.451 --> 27:36.321
We'll end today's show with a short disclaimer.

27:36.321 --> 27:40.158
The views and opinions expressed on this podcast are those of the participants,

27:40.158 --> 27:44.095
and do not necessarily reflect those of Fidelity Investments Canada ULC or

27:44.095 --> 27:48.099
its affiliates. This podcast is for informational purposes only, and should not

27:48.099 --> 27:50.635
be construed as investment, tax, or legal advice.

27:50.635 --> 27:52.937
It is not an offer to sell or buy.

27:52.937 --> 27:57.275
Or an endorsement, recommendation, or sponsorship of any entity or securities

27:57.275 --> 28:02.080
cited. Read a fund's prospectus before investing, funds are not guaranteed.

28:02.080 --> 28:05.650
Their values change frequently, and past performance may not be repeated.

28:05.650 --> 28:07.986
Fees, expenses, and commissions are all associated

28:07.986 --> 28:09.788
with fund investments.

28:09.788 --> 28:12.390
Thanks again. We'll see you next time.