Portfolio manager Aditya Shivram of Fidelity International, provides an update on the Fidelity Responsible Global Equity Income Fund. He discusses how the fund has fared in the current environment, where he currently sees opportunities, and why he remains confident in the strategy’s defensive approach for the long term.
This article is available in video format here: Video – Defensive by design: Staying disciplined in a narrow market
Relative performance has been challenging for the fund recently, but this does not reflect a broad deterioration in portfolio fundamentals or a breakdown in our investment process.
Indeed, the valuation and earnings outlook of the portfolio looks attractive today. Instead, portfolio challenges have been concentrated in a number of areas: underexposure to AI winners, insurance headwinds, and pressure on several perceived AI losers.
The challenges of a narrow market
It is worth emphasising the narrowness of the current market. Over the four months to the end of June 2026, only two of the 25 MSCI ACWI industry groups outperformed the broader market.
Semiconductor and technology-hardware earnings grew very strongly and, unusually, investors were also willing to sustain high valuations for those earnings. Across much of the rest of the market, valuations fell as capital moved towards AI build-out beneficiaries.
Against this backdrop, the fund’s largest headwind has been underexposure to ‘AI winners’ – the semiconductor and technology-hardware companies. Importantly, this does not mean we dismiss the AI opportunity.
Many of these businesses have delivered exceptional earnings growth. But our investment process requires confidence in the durability of those earnings, the cash flows they translate into, valuations, and the company’s ability to contribute to a dividend-based total return.
We therefore remain selective, rather than chasing short-term momentum.
Elsewhere in the portfolio, there were challenges from our insurance exposure. The issue was not a structural deterioration across the companies we own, but rather an unusual synchronisation of insurance cycles.
Pricing across personal lines, commercial insurance and reinsurance all began to normalise at broadly the same time after a period of very strong profitability.
Historically, these cycles have moved more independently and therefore provided useful diversification within the portfolio.
As they became more correlated, the aggregate earnings risk increased. We therefore reduced position sizes in several holdings, including Munich Re, Admiral, and Zurich.
We also saw pressure in businesses perceived as potential ‘AI losers’, particularly information and software specialists RELX and Wolters Kluwer.
Our research continues to suggest that their proprietary data, embedded customer workflows and ability to incorporate AI remain important strengths, but AI has widened the range of possible long-term outcomes, so we have reduced our position sizes accordingly.
There have also been stock-specific factors impacting the portfolio. Zoetis, the animal pharma business, was the clearest example. Competitive pressures were greater than expected, the outlook deteriorated and the original investment thesis no longer held, so we sold the position.
Seeking new opportunities for dividend-based returns
Our response to the current market environment has not been to chase momentum, but instead to remain consistent to our investment philosophy. The strategy continues to target a dividend-based total return, lower drawdowns and attractive risk-adjusted returns through the cycle.
We continue to favour companies with resilient earnings, strong balance sheets, good cash generation and valuations that provide downside support. Within that framework, we have recently redeployed capital into a wide range of new opportunities, each offering differentiated sources of earnings growth.
For example, we have taken a new position in Quest Diagnostics, a US laboratory testing company, where scale, improving industry structure and opportunities for market-share gains support a more durable growth outlook.
Another new holding is Ball Corporation, a leading global manufacturer of beverage cans that is benefiting from resilient long-term volume growth, with potential for operational improvement and meaningful margin improvement.
Techtronic Industries, another new holding, is a leading power tools business with significant US exposure.
The company’s interchangeable battery ecosystem supports customer stickiness, and there is strong earnings-growth potential, with infrastructure and data-centre construction providing additional demand tailwinds.
A promising earnings outlook
While today’s market is challenging for the strategy, the earnings outlook for portfolio companies remains strong.
The portfolio is expected to deliver around 12% weighted-average earnings growth this year, with aggregate earnings revisions still positive at around 4%.
The portfolio also continues to score materially above the MSCI ACWI on earnings persistence, indicating higher quality earnings with greater reliability and lower volatility.
There is historical precedent for the strategy to lag during periods of unusually narrow or speculative market leadership and subsequently recovering as fundamentals reassert themselves.
Our experience of 2017-18 and 2021-22 illustrates that maintaining valuation and quality discipline can be painful while momentum is building, but ultimately valuable when the market environment changes.
We would not use these episodes to forecast the timing or scale of any future recovery, but they illustrate why we do not believe chasing the market after a period of strong momentum is the appropriate response.
Remaining consistent: A defensive profile
Finally, it is worth considering the recent period in the context of the longer-term defensive profile of our approach.
Our longer-running track record shows that the strategy has historically captured around three-quarters of the market’s return during particularly strong markets, while losing materially less in more difficult periods. That asymmetry is an intentional result of our investment approach.
The investment proposition therefore remains the same: a differentiated global equity portfolio focused on resilient earnings, sustainable dividends, valuation discipline and lower drawdowns, offering diversification away from the highly concentrated parts of the global equity market.
This article is available in video format here: Video – Defensive by design: Staying disciplined in a narrow market
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
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