FidelityConnects: Where intrinsic value emerges today

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<b>Subtitles are AI Generated</b>

 

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Hello, and welcome to Fidelity Connects.

 

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I'm Pamela Ritchie. 2026 has been no stranger to market volatility

 

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alongside a powerful run in AI-led names.

 

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While daily market swings may leave some investors feeling disillusioned

 

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and searching for short term wins our next guests see something very

 

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different, opportunity.

 

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Joining us now to discuss where they are finding value globally and

 

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across sectors, and how they are going to weigh in here for us

 

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on their positioning amid concentration, volatility and shifting expectations,

 

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are Morgen Peck and Sam Chamovitz, portfolio managers

 

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of the Fidelity Global Intrinsic Value Fund.

 

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Warm welcome to both of you. Thank you for joining us.

 

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Thank you for having us.

 

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Great to have you both here.

 

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Sam, I'll begin with you, if you don't mind.

 

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Take us through ... we just mentioned a lot of sort of big words that do

 

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describe the market, volatility, concentration.

 

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What is this moment in the markets for you from your lens

 

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and your type of investment, what does this mean for you?

 

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In short, there's a lot of opportunity.

 

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The markets have been very volatile.

 

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I think they're often very volatile but the unique situation now is they're

 

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also very concentrated across one theme and things related to that

 

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theme and sort of sucking the attention

 

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and the dollars out of everything else.

 

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Because of that we're finding lots of opportunities.

 

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Just to refresh, we keep our process consistent throughout

 

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different market regimes and different periods of

 

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volatility, that allows us to keep a clear head and take advantage of

 

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opportunities, and that's exactly what we're doing right now.

 

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It's a really interesting ...

 

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there's sort of cover in some ways because there's so much attention being

 

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drawn in a particular direction.

 

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We'll talk more about that.

 

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Morgen, we've spoken to you many times over the years, I wonder if you can just

 

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remind us how your team works.

 

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The two of you are there. You worked for many years with Joe Tillinghast on

 

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this fund and others, also with Naveed Rahman who we speak to sometimes on the

 

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institutional side of things.

 

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Just tell us a bit about your team, how you work together.

 

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Absolutely. As you mentioned, Sam and I have a long history

 

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of working with Joel on a number of stocks.

 

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We became co-PMs on the broader suite of products

 

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back in 2015, 2016.

 

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Sam and I have actually been co-managing together going all the way back to

 

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2012 so we have a history of co-managing together.

 

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We took on responsibility for this fund right around five years ago.

 

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We also work very closely, as you mentioned, with Naveed

 

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who is our IPM.

 

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That's sort of a brief recap of the team and how we work together.

 

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Fantastic. Let's dig a little bit into this discussion of,

 

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I mean, actually, in recent days we've seen oil prices try to come down.

 

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There's been, it looks like, directionally a shift in what markets think about

 

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the risk from the war with Iran.

 

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Again, does that shift the types of opportunities that you're seeing, Sam?

 

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Tell us a bit about our focus on the war and AI and is

 

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there anything else to talk about out there?

 

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At the moment the markets are focused on those two

 

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key talking points.

 

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I don't think it's super abnormal that the market has a few talking points

 

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going on.

 

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The thing I would say is a resolution in the Middle East,

 

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or something that would get the market a little bit more comfortable broadly,

 

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should increase the breadth of

 

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what the market is finding attractive and could be an opportunity for a lot of

 

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things that have been left behind in this most recent frenzy.

 

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Tell us a bit about your process, Morgen, how you take a look at

 

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things. Value, intrinsic value, it's right there in the name so some

 

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of it is described there. There's some big

 

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companies across the US and globally that have

 

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not been seen necessarily as AI winners but are also very good companies.

 

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Just wondering how you kind of go at that. Take us through the beginning pieces

 

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of your process.

 

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Our fund is a little bit different than I think what a lot of investors are

 

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focused on right now in the market.

 

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As you state, our process and philosophy really centres

 

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around undervalued companies that have some sort of a quality

 

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bent.

 

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That combination of quality and value is really unique to

 

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this fund.

 

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What you should think about with that attribute combination is

 

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that it allows the fund to participate in the upside but

 

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also provide really good downside protection when we get market drawdowns.

 

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You've seen that sort of behaviour of the fund over long periods of time

 

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and that's something that we think a lot about, protecting shareholder capital

 

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especially during those drawdown periods.

 

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I think as it relates today in the environment that Sam just discussed,

 

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we are finding so many opportunities for companies that have long

 

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been on our watchlist because they're fantastic businesses but they

 

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were always out of our valuation strike zone.

 

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Many of the names that we're looking at, these stocks used to trade

 

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north of 25, 30 times earnings and we would not buy them because there's not

 

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sufficient margin of safety at that valuation.

 

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The valuations have come in so dramatically for one reason or another.

 

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It could be because they're viewed as an AI loser.

 

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Those are the types of names that we're finding really interesting today.

 

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I think volatility, it sounds like a scary word to

 

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us. We actually think of it as a huge opportunity to lean in and find

 

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these great ideas at discounted valuations.

 

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Sam, on the other side is also true.

 

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For instance, the things that are part of the concentration story in the market

 

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right now, I mean, semis but you could name others.

 

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It's not like you don't invest there but not perhaps at this type of moment.

 

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Just take us through that.

 

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Actually, I think the process worked exceptionally

 

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well. If you think about things on a cycle, and these are

 

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cyclicals, we should not forget that, they have tough times and

 

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they have good times and right now we're in a period of not just good times but

 

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amazing times for those stocks.

 

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They will not last forever.

 

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If we rewind just a couple of years, and we're not talking 10 years, we're

 

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talking about 2 to 3 years, we are able to buy

 

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what have turned into a lot of excellent AI

 

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winners. We owned and bought the memory stocks, for example, Micron

 

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and Samsung and Seagate on

 

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our disk drive side, at excellent prices.

 

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These were periods where they were actually not making money.

 

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The market hated them.

 

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Now we're [audio cuts out] more per share than

 

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our purchase price, a P/E of less than one times.

 

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That's the way our process works.

 

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We're looking for these great opportunities but when the market

 

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is focused elsewhere or unhappy about something short term.

 

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It's hard to know anything with precision in

 

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terms of timing or magnitude but the fact that

 

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these will be economically sensitive and cyclical remains, it's just

 

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unclear when that next cycle will come.

 

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Morgen, with AI fantastic

 

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advances and within the stock market sometimes a distraction,

 

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I mean, that's kind of what we're talking about here.

 

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How do you know that a company, for instance, that you're taking a look

 

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at isn't in the midst of being kind of swept away and actually

 

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disrupted versus sort of disruption risk?

 

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I mean, we've seen a lot of that play out since, say, November.

 

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How do you walk through that and take a look at opportunities?

 

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Absolutely. I would say for every company that we look at

 

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we're trying to understand how that business is going to be impacted by

 

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AI, how it might change the barriers to entry for the industry, how

 

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it might change the pricing power, the durability of the business model.

 

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We'll be the first to say that AI is continually evolving.

 

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We don't have all the answers.

 

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We're certainly in regular touch with our company management teams to

 

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understand how they're thinking about the opportunities and sort

 

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of the threats potentially from AI. We certainly

 

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are believers that AI is here, it's going to be here for a really long time and

 

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it's certainly not a fad. Going back to earlier comments,

 

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what we see in certain parts of the market is that there's been this very

 

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sort of sharp categorization between the AI winners and losers.

 

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What we're doing is we're spending time in both buckets, mostly the

 

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AI losers that look interesting to us, or the perceived losers that

 

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we think have become oversold.

 

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We're talking to those management teams to understand how they are thinking

 

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about the opportunities and the threats from AI.

 

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In the cases where we're adding to names it's where companies have control

 

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over the data, there's some sort of regulatory requirement that

 

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is really hard for AI to take on,

 

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or it may be impossible, or there's some sort of risk that AI can't

 

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account for. There are certain industries where AI comes into fold

 

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where we think the business should actually be protected and can be made better

 

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by the use of AI.

 

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It really is a company by company discussion that we're having on a regular

 

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basis with the names we hold and the ones we're looking at.

 

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It's fascinating. Sam, a lot of what fits some of the

 

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description that Morgen was outlining there right now, people will say, well,

 

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that's hard assets. You can't disrupt hard assets or certain industries

 

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that are very dependent on heavy industries and that kind of thing.

 

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It might be additive, the AI discussion, but it's not going

 

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to replace, for instance, largely.

 

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Do you go into those sectors that are hard assets, basically?

 

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I think one of the key things about our approach has always

 

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been that we cast a very wide net and

 

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we keep an open mind.

 

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There's nothing that is permanently or

 

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structurally off limits. It's about what's implied in

 

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the share prices. We have at Fidelity such a

 

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broad team in terms of analysts,

 

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in terms of sector portfolio managers and our colleagues that we

 

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are on top of the businesses,

 

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whether they're the hard asset businesses or the

 

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AI winners or the intellectual property businesses that may be at risk

 

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for disruption. I would say that it is not simply hard asset

 

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businesses. I think one of the areas where we're actually finding the

 

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real opportunities are actually the areas that are

 

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perceived to be disrupted that we just have a different perspective on.

 

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That's what's [audio cuts out]. Right now hard assets, everyone says that's

 

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obvious, okay, we'll go to the hard assets.

 

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It's actually the services or the intellectual businesses that we

 

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think have staying power and will adapt

 

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in a way within an AI world.

 

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That's really interesting. Back to the management discussion that Morgen you

 

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were saying just a second ago.

 

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Actually, we spoke off air and I think maybe Sam mentioned this, the

 

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role of management with AI within their own company at this stage,

 

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what are you talking to them about? You're trusting the management of the

 

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companies, obviously, that you're investing in, that you are putting that money

 

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to work out but just how are they approaching it?

 

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What could you share there?

 

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I would say broadly that we certainly are talking to our companies about

 

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how they're using and thinking about AI.

 

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Maybe just to take a step back, the quality of the management team is critical

 

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to our process in evaluating companies.

 

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Part of the assessment of the quality of management

 

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is how they think about potential future risks and disruptions

 

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to the business models.

 

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It's within a larger evaluation of management that we think about how

 

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they're using or not using AI.

 

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To answer your question, though, the majority of companies that we talk to

 

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today are using AI mostly for efficiency purposes

 

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in terms of taking costs out or increasing productivity of their

 

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workforce. I would say that it's really early days and they

 

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are Very heavily reliant on IT services

 

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companies or consultants to try to figure out how to get the most out of their

 

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AI investments.

 

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That's most of what we're hearing from companies that we talk to on a regular

 

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basis about how they're utilizing AI.

 

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I would say that the conversations we were having with management teams a

 

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quarter ago are really different than the ones we're having today.

 

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We appreciate that it's an evolving situation with what AI

 

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can do for these companies.

 

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Anything to add to that, Sam?

 

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I also want to ask you sort of about ... go back to the opportunity moment but

 

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just on the management front, is there anything else there that you want to

 

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add?

 

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Management and assessing management is a key part of our process, it

 

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always has been.

 

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What we're looking for is adaptable and resilient management teams.

 

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If we have done a good job with that they're front-footed

 

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in terms of AI, and that's our expectation, that they're taking the right

 

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decisions within AI for their businesses strategically and financially.

 

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This fund, Morgen, goes around the world.

 

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It's in the name as well. It's global.

 

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The interesting parts of the international trade have been alive for the last

 

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year and a half or so. There were some that said when the war

 

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began there was sort of more of a home bias moment.

 

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I'm just wondering how the global portion of the fund is contributing

 

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more or less than traditionally.

 

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Can you speak to that?

 

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I would say that we continue to find opportunities everywhere but we're

 

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definitely finding them outside of the US.

 

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One sort of informative data point is if you just look at valuations for the US

 

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market compared to Europe and Japan there's a pretty

 

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wide spread. Even if you look at just small-caps

 

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the Russell 2000's trading north of 20 times.

 

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Small companies in Europe even within the UK are trading 12, 13

 

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times and Japan 13 to 14 times.

 

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That's just one starting point to inform that markets abroad are

 

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pretty attractively valued but we do go name by name and

 

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sort of company by company to find the opportunities but that valuation

 

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backdrop is quite forgiving.

 

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We continue to find companies that are just as good as ones that we find

 

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here in the US. These are companies that have great brands and strong

 

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competitive moats but there's just a discount because they're outside of the

 

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US. We really think of those as opportunities.

 

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Sam, a number of people will point to the fact that Japan has had a much more

 

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shareholder-friendly environment for investors to go kind of hunting in the

 

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last year, year and a half.

 

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Does that particularly play into the way you're investing in Japan?

 

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You also spent time there, I think. Didn't you live in Japan for a while?

 

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I lived in Japan as part of Fidelity's opening

 

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the office there for 13 years.

 

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I have a soft spot in my heart for Japan.

 

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From a business perspective the Japanese had a different view of

 

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capitalism, and they still do, but they were much more

 

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conservative on their balance sheets. They were much more hesitant to

 

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consolidate industries etc.,

 

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so they have a much more fragmented public company list.

 

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Some of that is changing and you are seeing management

 

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teams see shareholders as a more important partner

 

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in terms of returning capital instead of holding capital.

 

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I think that's a very powerful thing. You're also seeing companies not

 

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need to hoard every business that they've ever had but maybe look for the best

 

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owner. That's led to opportunities.

 

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You also have a very long succession planning issue.

 

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That's leading to consolidation as well.

 

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There's become several catalysts for unlocking value in Japan which

 

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remains a very attractive market.

 

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Morgen outlined the P/E but it's also a P/E with a substantially

 

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better balance sheet. Balance sheets are typically highly net cash

 

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or with lots of hidden assets like property and

 

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cross-shareholding. A lot of this is being used more

 

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fruitfully which is a great thing for shareholders.

 

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I think the important thing for the fund and the fundholders here is we

 

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don't think this is done and it's probably early innings.

 

17:26.445 --> 17:28.180

It's probably early innings.

 

17:28.180 --> 17:31.517

Okay, fascinating. Morgen, help us understand how you are leaning in expressing

 

17:31.517 --> 17:33.552

via sectors.

 

17:33.552 --> 17:36.388

There's obviously cyclical stories to be told.

 

17:36.388 --> 17:39.758

We're talking a lot about whether there is or isn't going to be a rate hike.

 

17:39.758 --> 17:42.094

I don't know to what extent you want to comment on that.

 

17:42.094 --> 17:46.065

I'd love to just know how you look at

 

17:46.065 --> 17:50.035

the markets and how you're expressing, ultimately, some of

 

17:50.035 --> 17:54.573

your positioning through the sector side of things.

 

17:54.573 --> 17:57.876

You should definitely interpret the sector tilts of the fund as where we're

 

17:57.876 --> 18:01.447

finding opportunities on a bottom-up basis as opposed to some top-down macro

 

18:01.447 --> 18:05.417

call, as you know. Maybe just to quickly highlight a couple areas where

 

18:05.417 --> 18:09.121

we've been finding opportunities and where the fund is overweight, the first is

 

18:09.154 --> 18:12.925

within financials. I think a lot of people when they think of financials they

 

18:12.925 --> 18:16.862

just think of banks but there are a lot of other sub-sectors within banks

 

18:16.862 --> 18:20.766

and that's actually where we have been finding some opportunities.

 

18:20.766 --> 18:25.137

Trust banks are quite a bit different than a traditional regional or

 

18:25.137 --> 18:27.072

larger super bank.

 

18:27.072 --> 18:31.076

Those are companies that are very high quality, they've got

 

18:31.076 --> 18:34.913

a lot of fee income as opposed to rate spread income.

 

18:34.913 --> 18:36.748

The valuations are pretty attractive.

 

18:36.748 --> 18:39.885

They generate a lot of capital and they're returning that.

 

18:39.885 --> 18:43.055

Another area we're finding opportunities, I sort of alluded to before, is

 

18:43.055 --> 18:47.559

within insurance brokerage but also the wealth advisory business.

 

18:47.559 --> 18:51.663

These are two businesses that have been, we think,

 

18:51.663 --> 18:53.732

miscategorized as AI losers.

 

18:53.732 --> 18:57.803

These are fantastic business models that we think are really resilient.

 

18:57.803 --> 19:01.773

We've really used the sell-off that we've seen to upgrade the quality of

 

19:01.773 --> 19:06.678

the financials that we own. We certainly still own banks.

 

19:06.678 --> 19:10.816

The steep yield curve is going to be a positive for banks assuming we're

 

19:10.816 --> 19:13.352

not in a recessionary environment.

 

19:13.352 --> 19:16.922

Again, we don't own them because we have a strong forward outlook on a rate

 

19:16.922 --> 19:20.425

environment or a macro environment but those are the views that inform the

 

19:20.425 --> 19:22.194

overweight and financials.

 

19:22.194 --> 19:25.497

Just in the spirit of the left behind trade, we're finding a lot of

 

19:25.497 --> 19:28.967

opportunities in staples and that's true both abroad and in the US.

 

19:28.967 --> 19:33.305

These are companies, they're sort of idiosyncratic, they've got

 

19:33.305 --> 19:37.376

company specific things going on but we're able to find businesses that

 

19:37.376 --> 19:41.313

generate really strong returns, a lot of free cash flow that are trading 12, 13

 

19:41.313 --> 19:43.282

times forward earnings.

 

19:43.282 --> 19:45.717

That's really attractive to us.

 

19:45.717 --> 19:47.886

Anything to add on that, Sam?

 

19:47.886 --> 19:51.924

I think you were looking at one point of spirits, I

 

19:51.924 --> 19:54.626

think was one piece of how you're expressing some of that.

 

19:54.626 --> 19:58.397

I guess that's a staple, isn't it?

 

19:58.397 --> 20:02.434

Yeah. I think Morgen highlighted a few

 

20:02.434 --> 20:06.405

really specific ones but I think across every sector

 

20:06.405 --> 20:11.176

we're finding opportunities at this point.

 

20:11.176 --> 20:15.847

I guess the staples and spirits or beer have

 

20:15.847 --> 20:19.952

sort of been under pressure for a while following a post-COVID spike

 

20:19.952 --> 20:23.922

so some of the persistence and the slow

 

20:23.922 --> 20:27.993

growth has led to recently pessimistic valuations which always

 

20:27.993 --> 20:28.660

attracts us.

 

20:28.660 --> 20:31.663

Which is always a good moment for you to strike.

 

20:31.663 --> 20:35.534

Fantastic. It's really great to catch up with both of you to hear what you're

 

20:35.534 --> 20:40.005

up to at this moment and how you are calmly going through these

 

20:40.005 --> 20:44.076

interesting volatile waters in the markets with the idea of finding

 

20:44.076 --> 20:48.280

opportunity. Is there just a final point you'd like to leave with investors?

 

20:48.280 --> 20:51.083

Morgan, I'll ask you and then a quick point for Sam as well.

 

20:51.083 --> 20:53.852

Just a final message.

 

20:53.852 --> 20:57.923

I think oftentimes when we talk to investors we just like to highlight that one

 

20:57.923 --> 21:02.461

way to think about this fund is that it's an uncorrelated alpha stream,

 

21:02.461 --> 21:06.732

especially relative to most other funds in the market.

 

21:06.732 --> 21:10.836

Again, just emphasis on that downside protection which is really important

 

21:10.836 --> 21:12.571

when it happens.

 

21:12.571 --> 21:13.572

Fantastic. Sam.

 

21:14.606 --> 21:18.577

I'd just say thanks for the partnership and trusting us.

 

21:18.577 --> 21:22.648

As to Morgen's point, I think

 

21:22.648 --> 21:26.351

just because you have multiple funds doesn't mean they're diversified if

 

21:26.351 --> 21:29.855

they're all owning the same thing and we're probably a very good

 

21:29.855 --> 21:31.556

diversification mechanism.

 

21:31.556 --> 21:34.259

It's great to catch up with you. Thank you for joining us from Boston.

 

21:34.259 --> 21:36.728

Sam and Morgen, all the very best.

 

21:36.728 --> 21:39.364

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21:39.364 --> 21:43.669

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22:46.531 --> 22:49.134

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