FOCUS 2025: Harnessing quality across global markets – Patrice Quirion

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Well, wasn't that the video? That's great!

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Always makes us nervous to see ourselves on videos.

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Absolutely. Welcome back from break everyone.

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Hope you had a chance to step out into some sunshine.

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For those of you online thank you for joining us.

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Curiosity, a lot has happened in the last year.

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How many advisors here and online, feel free to raise your hand, have

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pivoted or added to some international exposure.

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Look at those hands, how things have changed over the years.

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You're all lucky that we have Patrice Quirion here joining us today to discuss

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all things international, all things global.

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You just saw the list of mandates that you manage on behalf of Fidelity.

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Very exciting. If we think a year ago, you were shouting

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from the rooftops about why people should be pivoting to international, why we

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should be increasing our exposure, getting out of the U.S., really

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diversifying our holdings. Take us back to why

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that is still increasingly important and really why and how

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that shift has occurred. Take us maybe from the top down and we'll work our way

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down the ladder there.

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First, happy to be here, good to see all of you.

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If we think back of the past number of years where international was

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really out of favour, I think ultimately led

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to an overreaction in the market.

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As a contrarian investor I'm always coming back to the investment philosophy,

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two core beliefs where the markets tend to

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ultimately overreact.

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Tendencies get over recognized too much, crowding

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takes place on both sides, on the positive side and on the negative

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side as well. That can create opportunity. The other core belief I have

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is pretty much everything follows a cycle.

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We think of cycles as cyclical stocks but in reality there's

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cycles across most big economic trends Some are shorter,

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some are longer. The longer ones are easy to get confused

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with structural changes that will never mean revert.

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I think when it's been going on for too long you get that combination

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... a little bit like Ramona alluded to ...

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the emotional aspect, the crowding aspects or

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the sort of leaving aside aspect of investor behaviour.

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You put that with very long cycles that in the case of international

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equities have been sort of going against them since really the European

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financial crisis in 2013 and it led to an

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incredible divergence of expectations, valuations.

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From an investment standpoint what do we really think

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about the value of a business?

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Ultimately, we can think of investing as trading stock certificates

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but, ultimately, investing is about buying a stake in a business for the

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next generation. To get the right price we pay for that business

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is the core of what we do, in my eyes.

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When the markets diverge too much it creates those opportunities where patience

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might be required but where, ultimately, those gravitational forces

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to mean reversion should have

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an impact. That's been the case for quite a few years.

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I think what has changed late last year, early this year is

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two things.

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One, I think there's starting to be a little bit more

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potential catalysts on international equities.

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If we think of Europe we are potentially moving closer to

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a resolution of the Ukraine conflict, although there's still no line

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of sight on there.

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We have the fiscal spending out of Germany which could act as

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a meaningful catalyst to business and consumer confidence to

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the construction industry.

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If we look at Asia we are starting to, finally, after quite

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a few years, maybe see signs of stabilization in the

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Chinese real estate market and the consumer confidence over

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there. That's one thing where from very depressed levels you're starting

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to see maybe light at the end of the tunnel for Europe and

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China, which are what matters most internationally.

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I was going to say, and we're going to dive into both of those a little bit

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later because those are two markets that have been key pieces into your

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portfolios.

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Exactly. At the same time I think the level

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of optimism around the U.S.

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market that sort of culminated right after the U.S.

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election last November, I think is starting

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to maybe have played its

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course. I think the U.S. market is still performing well but is increasingly

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driven by a limited number of stocks tied to the AI

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dynamic or semiconductors data centre.

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I think for investors who are starting to get worried about where we are

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in that AI cycle I think diversifying

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away out of the U.S., the S&P 500 or

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the NASDAQ, more into international markets that are less exposed

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to that potentially peakish trend brings

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some diversification. I think this has been gathering momentum so far

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this year but I don't think it's done is the message.

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Absolutely. You mentioned two things, the catalyst in Europe and Asia,

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pivoting away from the U.S., all contributors, you did mention

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the conflict in Ukraine.

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There's the trade wars that have been going on globally.

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What has been ...

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this is a very broad question but the global market impact because of all of

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that. This will maybe be a lead into the opportunities that you're starting to

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see.

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Obviously, the trade wars that

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are still with us today have been grabbing a lot of attention.

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A few points that I keep in mind, I think first,

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initially, it tends to be the case, the market has potentially overreacted

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to what the actual impact would be.

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The reality is there will be some impacts but

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the extent to which supply change will change overnight has probably

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been exaggerated.

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It's really hard to move entire supply chains.

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It's been happening for a number

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of years.

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Multinationals manufacturing in Asia exporting to North America

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have been diversifying away from China for a number of years so does that

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accelerate it a little bit?

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Potentially. I think we're at a stage where a lot of what is manufactured

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there is manufactured there for reasons.

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The impact was maybe exaggerated.

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Secondly, we need to think of the impact not only on those supply chains

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but the impact on inflation.

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At the moment the market is, I think, declaring victory on that.

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The data suggests it but deep down I

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remain a little bit nervous about that, for a couple of

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reasons. I think we've seen inflation easing probably

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in part because the economies are cooling off to some extent.

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Also, I don't think we've seen the full impact of

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the inflationary pressure that tariffs will cause.

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I think we will see a lot more of that impact with the back to school,

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with the holiday season for the only reason that

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a lot of what we've been buying for the past four or five months since the

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tariffs have been in place was already on U.S.

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soil, was in inventory and was not subject to tariffs.

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Now companies have been sort of buying over the past quarter or so

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goods that are subject to tariff which will be on the shelves like this fall

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as we go into the holiday season.

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Let's keep in mind that the inflation impact is maybe not fully in yet.

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As always, as active managers when there's a lot of volatility, when there is

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potentially overreactions in the market it creates opportunities and

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we should be active around that.

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It's not only the impact on the fundamentals, which is what

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we tend to focus on. Fidelity, I think of us as an army of

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analysts trying to really understand the impact on companies but

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there's also the bigger impact of risk-on versus risk-off

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which is, I think, becoming increasingly important in this market, a lot of

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systematic movements, a lot correlation into the markets.

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When you get some risk-off periods it tends

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to create opportunities that we've tried to seize not necessarily

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on the companies that were most impacted by tariffs but if we go back

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to the correction in April one of the hardest hit sector

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was the technology sector which is one of the least impacted by

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tariffs but was one of most risk-on part of the market

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which came off. It can present opportunities in parts of the

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market that maybe you wouldn't expect.

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Maybe that's a good segue because your top 10 just came out yesterday.

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As of September 30th we have a new top 10, if you want to check that out on

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fidelity.ca, but Intel creeped into your top 10.

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Maybe just going a little bit down that technology path talk to us about Intel

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and how that made its way into your top 10.

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Maybe to set the ground for the ones who've heard me speak for the past number

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of years, I am not the investor who will be chasing that

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AI infrastructure boom.

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I think it's great at the moment. I think it's an open question how long does

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it last for but I remain of the view that this is

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likely to end badly on the hardware side of things.

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It's so much of the market cap in the U.S.

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but even in global markets which is certainly not cheap on normalized

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earnings, which is my approach.

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Ot's the sector that I've been largely underweight for a

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long period of time.

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If we go back in 2022 after the

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tech sell-off, if we go back in April to a lesser extent and shorter

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duration it creates opportunities and the positioning becomes

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a little bit less extreme in the market.

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The deltas become a little less extreme.

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As a result I will make the portfolio positioning a little bit less extreme.

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It means adding to the sectors that sell off quite a bit in a very typical

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sort of contrarian fashion.

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A couple of names on that.

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You'll see top position of the portfolio is now Microsoft.

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I'm still largely underweight the Magnificent

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Seven but within that group I think the higher quality,

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more software-driven, higher cash flow generation businesses

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is where I'll find interest. This is the one name that I picked to get a

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little bit of exposure on the back of what happened in April.

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That was before April but over the past few years there's a couple stocks

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within the tech sector that ...

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it's always not a blanket statement

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but you find opportunities within a sector.

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I'll bring two that are in a portfolio that are becoming bigger in

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weights because the stocks are working now, Intel and I'll put Samsung

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Electronics in there.

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Both are sort of historical leaders, strategic assets that

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basically things don't go their way either for technology side of things at

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Intel, missing the memory for

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data centres for GPU at Samsung.

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When the market capitulates on those names and you're not paying for

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... or paying very little for the options of things

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going right when you know they are strategic assets it

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leads to a situation where you might not see the catalyst immediately

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but if you're patient things tend to happen.

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We've seen it with Intel, now the U.S.

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government being involved, a lot of the big semiconductor

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companies taking stakes in the business.

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Suddenly the market's excited about the optionality of them closing

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the gap on fabs versus TSMC, essentially.

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Hello, investors. We'll be back to the show in just a moment.

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I wanted to share that here at Fidelity, we value your opinion.

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And don't forget to listen to Fidelity Connects, the Upside, and French

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DialoguesFidelity podcasts available on Apple, Spotify, YouTube, or wherever

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else you get your podcasts. Now back to today's show.

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You just mentioned contrarian, for those of you that don't know Patrice that is

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what he is. He and Hugo, I would say, are good friends, manage contrarian

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in very different ways but anti-glamour actually just resonated with me from

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Ramona's session because I would say you also maybe are searching for the

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anti-glamour in that.

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Talk to us, and let's maybe take a step back into the regional allocation of

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the portfolios. Global Concentrated Equity, International

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Concentrated Equity have beaten 100% of peers year-to-date.

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They're having a fantastic year.

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I think that's been part of your strategic weightings to the certain specific

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regions. Right now you have a significant underweight to the U.S.

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and, obviously, international would have that stripped in

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your global. Talk to us about some of these more international markets.

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You've talked about Europe, let's start there and what you're seeing in Europe.

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Europe has been the big overweight into the portfolios for the past

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few years.

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It was, essentially, based on the fact that you were looking, we were looking,

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at very similar companies in the European

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continent relative to close peers in the U.S., a lot of multinationals.

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The European names were sort of systematically trading at a

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discount to the U.S. names.

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If you are limited to one market that doesn't matter but in my case

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where I can really move assets, and we do it very actively and we

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move things materially, it was just

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more compelling to buy the very similar business in Europe versus the

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similar one in the U. S., either because of better fundamentals, in most

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cases, because the valuations were very different.

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That was part of it.

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The other part of it is there are some big sectors where I was finding

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sort of what is priced into those stocks just way

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less demanding in Europe versus the U.S.

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Let's think of financials.

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For years I had my banking exposure within the portfolios

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where, again, some global funds will say, well, I own

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a little bit of financials in the U.S., a little bit in Europe, a little bit in

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Asia and we'll try to pick the best one within each region.

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Okay, it's one way of doing things but I don't think that really expresses your

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highest conviction. In my case, I take a sector like banks

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and let's go around the world and where does it look most compelling right now.

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I don't need to be in the other regions where it is less compelling.

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Over the past number of years European banks, to me, felt a lot more compelling

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because of the rate sensitivity they're gearing in earnings

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from rates going from negative for a very long period of time

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in Europe to sort of rates that have renormalized.

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If you were spending the time to understand the earnings impact of what rates

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at 2, 2 1/2, 3% meant for European banks' profitability

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you were starting to make cases where earnings will double, triple, quadruple,

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not plus 10%, massive step changes.

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The market was sort of slow to realize that.

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I've been there for a period of time.

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Now, by the way, I think this is being a lot more recognized and I've

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moving my banks exposure away from Europe and now into

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Japan. We can talk about that later.

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It's a combination of sectors that are more domestically geared that may look

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to have better fundamentals with some valuation differentials.

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Lastly, I'll just make a quick sort of side note on my

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comment. I think everything follows a cycle.

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I think one thing that I find extremely useful as

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a long term investor is to ask yourself

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not only what's doing well globally, what sector, what company,

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what country, but where are we on those cycles.

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I remain of the view that the U.S.

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is probably more towards the up-cycle part both on

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consumer spending, fiscal spending and corporate spending

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with the AI boom that we are seeing right now.

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As opposed to you go to Europe and we are more, I would say, mid-cycle

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in some areas like government spending, corporate

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spending and we are potentially closer to the bottom on consumer

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spending. It's been tough for a long time in European consumer

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confidence. That brings up a whole bunch of opportunities, especially

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in smaller cap stocks that are more domestically geared to

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consumption or construction or housing and things like that, all the things

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that could potentially cyclically rebound is a question

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of when, not a question of if.

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I don't think 10 years from now those will still be at depressed levels.

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It's a combination of all that that led me to Europe.

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I think where we'll go next is, to me, that has

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partly played out and there are some sectors, I talked

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about financials, but other areas like anything tied to defence, for instance,

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that the market now really acknowledges is no longer contrarian,

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is no longer mispriced, in my opinion, and as a result we

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are starting to look elsewhere. Elsewhere means still Asia,

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especially China, and to some extent coming back in

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the U.S. into the parts of the market, call it the S&P 490

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which has not done nearly as well as the rest where there are pockets

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of weakness that may become cyclically interesting here.

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You've already taken us there so I'll just guide you along the way.

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Let's go to China.

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Consumer discretionary I know has been of interest, travel has been of interest

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to you, maybe quickly if you want to touch on what that looks like, and then

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you did make an interesting point there at the end, coming back to the U.S.

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We know people have been retreating but what else other than

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the Mag Seven is there to see?

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Maybe first on China, I was talking of where are we in the cycle in Europe?

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I think if you look at where are we in the cycle in China

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I think across the board we are close to the bottom

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which--

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Which is great upside.

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--doesn't tell you when things will turn but tells you the risk-reward over

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time is probably tilted in your favour, especially when

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the stocks are that cheap. The interesting thing is usually when you're close

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to the peak, sort of Finance 101, what you learn on school benches,

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when you're close to the peak you should pay a lower multiple because things

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will eventually go the other way. It's not how the market works.

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When you're closer to peak people are excited, valuation goes even higher

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even if it's on peak-ish earnings.

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The inverse happens when the market's really out of favour, not only

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are earnings lower, expectations for growth lower but

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stocks are also on lower multiples.

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That was absolutely the case in China, if we go back 12,

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18 months ago.

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This is starting to change.

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The Chinese market has been performing better year-to-date and actually

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started in the second half of last year.

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I think it's still cheap but the market is starting to realize that now we are

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apparently bottoming.

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I'm not going and buying sort of across the board.

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There's still some issues. There's still some structural issues around real

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estate. I think the banks are still black boxes

[00:20:26.959]

to a very large extent.

[00:20:30.896]

There's a bunch of industries with overcapacity which creates not only domestic

[00:20:35.133]

issues but global issues and I think part of the reason why we are in this

[00:20:38.804]

tariff environment.

[00:20:41.440]

If you think of what will be driving the Chinese economy over the next 5 to

[00:20:45.410]

10 years, I think it's the story of rebalancing.

[00:20:47.746]

Again, back to the cycles, everything

[00:20:51.783]

follows a cycle. Cycle a number of years ago was boom in infrastructure

[00:20:56.054]

and real estate. Cycle over the past few years was boom in manufacturing

[00:21:00.058]

capacity, increasing quality of a variety of products, taking

[00:21:04.062]

leadership in a bunch of industries which led to overcapacity.

[00:21:08.200]

I think the story for the next 5 to 10 years will be let's rebalance the

[00:21:11.503]

economy away from infrastructure, away from manufacturing, more towards

[00:21:14.940]

domestic consumption, service economy.

[00:21:17.476]

I think that's what's needed. If you believe that takes place you

[00:21:21.446]

have a bunch of Now very well established domestic

[00:21:26.518]

champions in e-commerce and travel and consumer

[00:21:30.622]

goods.

[00:21:32.524]

I still have a lot of conviction on that thematic over the next number of

[00:21:35.727]

years.

[00:21:36.128]

You'll see the biggest positions in the portfolio are companies like Alibaba,

[00:21:40.399]

like Prosys which is a holding company where the value is Tencent.

[00:21:43.802]

But alternatives to what we would typically know here over in North America

[00:21:47.072]

that could really take off and add growth to the portfolios.

[00:21:50.542]

Excellent. You mentioned Japan really quickly.

[00:21:52.778]

I know you recently travelled there.

[00:21:54.646]

I think everyone's been travelling to Japan recently, it seems like in my

[00:21:58.717]

talks. I know you were racking up the Aeroplan miles.

[00:22:02.521]

One of my colleagues gave me a stat. You've earned so many I think it could

[00:22:05.457]

take you around the world 50 times.

[00:22:07.926]

You are such a frequent flyer.

[00:22:09.861]

Tell us about Japan. Tell us about what's drawing you there.

[00:22:13.498]

I know you along with Salim and other global investors are really seeing it as

[00:22:17.869]

a hotbed for opportunity.

[00:22:20.038]

What's your view?

[00:22:21.239]

It's a fairly mixed view, to be fair.

[00:22:22.941]

I think from a shorter term perspective, I talked about the financial sector, I

[00:22:27.245]

think there's opportunities as the country is finally lifting from

[00:22:31.550]

decades of deflation.

[00:22:34.086]

Now inflation is there. I think they are slow to acknowledge

[00:22:38.423]

that it is becoming more systemic,

[00:22:42.627]

notably because working age population is in pretty fast decline

[00:22:46.698]

right now. There's labour shortages across the board, wages are going up and

[00:22:50.535]

driving the price of everything else.

[00:22:52.204]

The weak yen has been driving a lot of imported goods inflation and

[00:22:56.141]

Japan is sort of that insular island.

[00:22:57.909]

They import pretty much every raw commodities, materials.

[00:23:02.180]

I am of the view that inflation is more systemic there and

[00:23:06.318]

as a result that era of zero interest rates is

[00:23:10.589]

gone. If that's the case, just like we've seen in Europe, the

[00:23:14.626]

impact on bank profitability could be very material.

[00:23:18.029]

That's one sector of interest.

[00:23:19.064]

There's interest from a corporate governance or company

[00:23:23.602]

structure perspective where historically it's been

[00:23:27.773]

a very inefficient corporate structure, lazy balance sheets,

[00:23:31.910]

a lot of cross-shareholdings, companies that are not always optimizing

[00:23:35.914]

returns and margins.

[00:23:39.084]

There's been talk that this is changing for a long time and

[00:23:43.121]

I think there's starting to be increasing signs or examples of things changing,

[00:23:47.759]

although it's case by case.

[00:23:50.529]

This is two positives.

[00:23:53.165]

The one big negative, I'll leave you with a high level thought, Chinese

[00:23:58.603]

competition across a variety of industries is real.

[00:24:02.607]

We are starting to see it. I think starting is the right word.

[00:24:07.846]

If you think of markets, to come to the U.S.

[00:24:12.050]

there will be barriers like tariffs and others but to go to emerging markets,

[00:24:17.155]

think Southeast Asia, India, Africa, Middle East, LatAm,

[00:24:21.259]

I think we are sort of entering an era where Chinese

[00:24:25.997]

dominance or high competition in those markets, we're

[00:24:30.101]

going to gravitate towards that.

[00:24:32.304]

We need to ask ourselves who has to lose.

[00:24:34.606]

In a lot of cases those Japanese multinationals were the market

[00:24:38.643]

leaders in those markets across cars, technology,

[00:24:43.181]

et cetera, and are at risk.

[00:24:45.283]

I think we need to be careful of buying Japan at large because there's

[00:24:49.421]

a lot of structural headwinds as well.

[00:24:51.590]

Interesting. Great thoughts to have here.

[00:24:53.325]

This is just a taste, I would say, of what's available on the global scale.

[00:24:57.062]

You cover 31 countries, there's endless research I know that you

[00:25:01.132]

sift through day to day and trying to find the best opportunities, turning

[00:25:05.203]

over those rocks as many people use. Before we pivot into

[00:25:09.474]

kind of the grand finale, if you will, weaving in our rapid fire, we

[00:25:13.445]

are keeping ours short and sweet, but just a little bit on travel.

[00:25:16.515]

If you have to personally pick between Europe and Asia right now where are you

[00:25:20.085]

going?

[00:25:21.820]

Personally, I love Japan. I think it's a fantastic culture.

[00:25:24.656]

I can  understand why people...

[00:25:25.423]

So you're on the hype, got it.

[00:25:27.325]

If you are in Japan are you at a beach or are you in the city?

[00:25:30.695]

I'm more a city guy. I like to see the economy and how business

[00:25:34.799]

works. You don't see that on the beach.

[00:25:36.468]

Excellent. I know it's not KPop Demon Hunters

[00:25:40.639]

like me and Ramona as our last movie watched, but what's yours?

[00:25:45.243]

If I have to pick a movie I'll go with any of the James Bond movies, really,

[00:25:49.180]

for me. By the way, FID 007 as a fund code that leads you

[00:25:53.151]

to Global Concentration.

[00:25:54.319]

No one will ever forget that now.

[00:25:56.855]

There you go. You heard it here first, FID 007.

[00:26:00.926]

Everyone's got that ingrained in their brain now.

[00:26:03.461]

Maybe not the most popular series right now but...

[00:26:07.198]

That's okay. Just to finish up, we have two minutes left,

[00:26:11.136]

I think ultimately the question, especially when looking at the international

[00:26:14.205]

markets, it goes why would I buy Patrice?

[00:26:16.474]

Why would I by International Concentrated Equity versus buying just

[00:26:20.712]

a broad index? Why you?

[00:26:23.682]

I'll leave you with a couple of thoughts. I think people are starting to

[00:26:26.351]

realize that maybe the decade of leadership from U.S.

[00:26:29.721]

tech, AI more recently, I'm not saying it's coming to an end now

[00:26:33.992]

but at some point it will and leadership will move elsewhere.

[00:26:37.429]

If we ask ourself where that leadership could come I think there will

[00:26:41.533]

be potentials on China on

[00:26:45.670]

resources potentially. We're maybe starting to see early signs of that.

[00:26:49.074]

Leads you more internationally.

[00:26:51.309]

I think if you just buy general international exposure, if you

[00:26:55.880]

buy the EAFE or an EM ETF you'll

[00:26:59.818]

end up with a lot of large-cap companies, multinationals.

[00:27:05.123]

If you buy the EAFE index you'll end up with a bunch of big European pharmas.

[00:27:08.526]

You'll have SAP and ASML which are kind of back to the

[00:27:13.798]

theme of the tech extension that we're in right now.

[00:27:18.670]

I think the opportunity is much more to go underneath that and find the

[00:27:22.507]

companies that will benefit from a pick-up of general sentiment across

[00:27:26.878]

China and Europe that will lead to a better consumer, that will lead to better

[00:27:31.116]

construction activity.

[00:27:33.551]

We need to be a lot more targeted to find those.

[00:27:36.187]

This is exactly what I'm trying to do across the portfolios, not to buy

[00:27:40.125]

you the big names everybody knows about but let's find you the targeted

[00:27:43.762]

exposure that are exposed to thematic that can have legs to go, that

[00:27:49.000]

are still cheap and that is just not that easy to go find

[00:27:53.038]

on your own. I think we can play a pretty core role and also

[00:27:57.208]

try to isolate you to a good extent for

[00:28:01.846]

the day where that tech boom comes

[00:28:05.984]

to an end by being massively underweight to those

[00:28:10.221]

thematic, to those sectors, and to those correlations that run pretty large

[00:28:14.292]

as well. Contrarian take and much more targeted is what I'd leave you with.

[00:28:18.229]

And you have the Fidelity reach at your fingertips to help you in that search.

[00:28:23.001]

Patrice, thank you for joining us today.

[00:28:27.739]

Thanks for watching or listening to the Fidelity Connects

[00:28:31.676]

podcast. Now if you haven't done so already, please subscribe to Fidelity

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We'll end today's show with a short disclaimer.

[00:29:05.343]

The views and opinions expressed on this podcast are those of the participants,

[00:29:09.180]

and do not necessarily reflect those of Fidelity Investments Canada ULC or

[00:29:13.118]

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[00:29:19.657]

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[00:29:21.960]

Or an endorsement, recommendation, or sponsorship of any entity or securities

[00:29:26.297]

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Fees, expenses, and commissions are all associated with fund investments.

[00:29:38.510]

Thanks again. We'll see you next time.