Fidelity Portfolio Manager Bill Kennedy has a cautious outlook for global consumer spending but is still looking to capitalize on opportunities to invest in select consumer discretionary companies that have demonstrated resilience and the ability to perform well, even amid weak consumer spending.
“With higher interest rates hiking the cost for mortgages, auto loans and credit cards, consumers around the world have felt the pinch and some businesses have been challenged to maintain revenue and profit growth,” says Kennedy, who manages Fidelity® International Discovery Fund (FIGRX). “Still, my research points to some promising avenues to explore within the realm of consumer discretionary stocks.
In helming the diversified international equity strategy since 2004, Kennedy takes a long-term view and focuses on the stocks of high-quality companies with above-average growth prospects that are trading at a reasonable price.
He particularly likes businesses that have had stable and high returns on capital, durable competitive positions, consistent profitability, solid free-cash-flow generation, a good balance sheet, and a management team whose interests are aligned with those of shareholders.
Consumer discretionary stocks represented about 13% of the fund as of January 31, an overweight versus the MSCI EAFE Index. Within the sector, Bill has chosen several companies he believes could generate favorable financial results, even in the face of lackluster consumer spending.
As an example, he points to MercadoLibre, the largest online marketplaces in Latin America. “The Uruguay-based firm excels in both sourcing and selling products in a region where volatile currency often challenges many global competitors,” Kennedy says, adding that its robust fintech platform helps to strengthen its market position.
“Hermes International – one of the world’s largest and most admired makers of upscale luggage, apparel and accessories – also speaks to this theme,” Kennedy adds. “The France-based company has maintained strong pricing power by deliberately keeping its products scarce, helping the business to thrive, irrespective of consumer spending trends.”
Sticking with luxury brands held in the portfolio, Kennedy likes Italian sports car manufacturer Ferrari for its scarcity-based strategy, explaining that the firm produces fewer cars than it could sell, creating a perception of brand exclusivity and driving demand.
In Japan, he’s favored Fast Retailing, the parent company of Uniqlo and several other retail brands, noting that the business has demonstrated the ability to grown sales in the U.S. and Europe during tough economic times.
“The firm’s high-quality yet inexpensive products have fared surprisingly well in China, despite the considerable pressure consumers there have faced,” Kennedy concludes.
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Bill Kennedy is a portfolio manager in the Equity division at Fidelity Investments.
In this role, Mr. Kennedy manages Fidelity International Discovery and Sustainable International Equity strategies across various investment vehicles.
Prior to assuming his current responsibilities, Mr. Kennedy managed Fidelity Pacific Basin, Japan, and Worldwide strategies across various investment vehicles. Previously, he served as an assistant portfolio manager and as a research analyst covering investment opportunities in India and the regional power sector. Mr. Kennedy also served as director of equity research in Fidelity’s Hong Kong office and was a group leader of the Global Research group. Prior to joining Fidelity, Mr. Kennedy was an analyst in Prudential Investment Corporation’s private equity arm in Newark, NJ; Hong Kong; and Singapore. He has been in the financial industry since 1990.
Mr. Kennedy earned his bachelor of arts degree in economics from the University of Notre Dame. He is also a CFA® charterholder.