Fidelity Global Technology: February 2025 fund update

• The fund invests in technology companies from across the globe.

• The manager of the fund has a good track record of investing in technology companies, and is backed up an impressive array of resources at Fidelity.

• The manager is reluctant to pay high prices for stocks, a style of investing known as “value investing” which means that it can look quite different to the index at times.

• This fund does not currently feature on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential.

How it fits in a portfolio

The Fidelity Global Technology fund aims to grow investors’ money over time by investing in technology companies, or companies that will benefit significantly from technological advances.

The fund invests globally, including in emerging markets and smaller companies, both of which could increase risk. The manager has the flexibility to invest in derivatives which, if used, adds risk. It invests in undervalued companies. These are companies that might be out of favour or where the manager doesn’t feel the share price matches the company’s longer-term potential but has the potential to bounce back.

This makes the fund quite different from other technology funds with high growth expectations, and from the index, as it may hold little or nothing in some of the biggest companies that make up the index if the manager feels they are too expensive.

Investing in a single sector like technology is a higher-risk approach compared to a more diversified one. We think funds investing in a specific sector should usually only form a small part of a well-diversified investment portfolio.

Manager

The fund is managed by Hyun Ho Sohn. Sohn joined Fidelity in 2006 as an equity analyst on Fidelity’s Asia Research Team based in Seoul, South Korea. Prior to this he worked as an analyst at Morgan Stanley and Shinhan Investment. In 2011 Sohn relocated to Fidelity’s London office to begin managing a Global Technology Pilot fund. He built his track record on this fund before taking on the Fidelity Global Technology fund in 2013 which he’s managed ever since.

Sohn has access to Fidelity’s impressive research platform, which includes 109 locally-based research professionals across Europe and Asia. Of these 31 are specialists in the IT and Communication Services sectors.

Dmity Solomakhin is named as backup manager on the fund. Solomakhin is a fund manager on the global equity team at Fidelity.

Whilst Sohn makes good use of the wide resources available to him at Fidelity, he is the final decision-maker both in terms of what goes into the portfolio and in what size.

Process

Sohn believes that understanding technology trends, innovations and new technologies is just one element in identifying companies that could deliver good performance over the long term. In order to really add value for investors Sohn believes that it’s necessary to know companies well and buy shares in them at attractive valuations.

Sohn believes that most investors have short time horizons, encouraged by the quick-moving trends and complex sub-cycles of the technology sector. By taking a longer-term view Sohn believes that he can benefit from other investors’ short time horizons by focusing on stocks which are currently out of favour, but whose outlook is significantly better than the current prices suggest. He tends to buy stocks earlier than other investors and sell them earlier too. This is known as contrarian investing.

Whilst a lot of companies in the technology sector can be classed as “growth”, the manager deliberately looks for companies across a range of styles to get some diversification. Traditional growth stocks, such as Alphabet, will still make up the majority of the portfolio though. These can be volatile in the short term, but are held with a longer investment horizon of at least three years.

As well as these growth stocks, the manager invests in cyclical businesses, preferring quality cyclical companies with strong balance sheets and good cash flow generation. These businesses tend to be less capital intensive than traditional growth stocks, and the manager looks for companies with strong balance sheets so as to minimise downside risks. These tend to be held with a shorter time horizon than growth stocks, typically for 12 to 18 months.

The third category of stocks that the manager seeks out is special situations. These tend to be more diversified companies which require complex analysis to understand. Often the market shuns these types of companies because it simply does not understand them. If you are prepared to put in the work it can be possible to fund undervalued companies with significant upside to their price.

The manager aims to build a diversified portfolio including stocks from each of these three categories. The proportion in each will vary, but the growth category is likely to be the biggest.

The fund is usually made up of 50-100 stocks. Position sizes vary depending on the manager’s conviction. It’s unlikely that he would own more than 7-8% in one stock. He doesn’t have to hold any stock, and this means that he can sometimes have very underweight positions relative to the benchmark.

Sohn will sell a stock if he thinks it’s no longer underpriced or if he believes the fundamentals of the business to be deteriorating.

Recent purchases in the fund include some semiconductor companies like Lam Research (a lesser-known US semiconductor manufacturer) and Taiwan Semiconductor Manufacturing Company (TSMC), but also a small position in Meta to reduce the fund’s underweight when the company’s shares sold off.

The manager also bought some companies involved in data services, such as Adobe. Data is a necessary prerequisite for anything Artificial Intelligence related, and the manager believes that these types of data companies are likely to be the winners of the future.

Sales included Salesforce and Siemens Energy. The latter provides products and services to support companies and countries to reduce emissions and had performed really well over the last 18 months so the manager sold it to take some profits.

Culture

Fidelity was founded in 1969 and is a global investment manager. The company remains privately owned, which means its managers can focus on the long-term interests of investors rather than short-term shareholder demands. That’s helped the firm develop an investment-focused culture, where investment ideas are openly discussed and debated, and information is shared amongst the firm’s various teams.

The company's scale means investment teams are well-resourced and fund managers are well-incentivised. We think it's positive that all Fidelity fund managers are incentivised based on the longer-term performance of their funds. We think this aligns their interests with those of investors.

ESG Integration

Fidelity has committed to improving its approach to ESG in recent years. The firm developed a structured engagement program which allows it to be more systematic in its engagement on environmental and social issues, became involved in more collaborative engagement initiatives and introduced ESG data into fund managers’ quarterly reviews to raise awareness of ESG issues. The firm also bolstered its dedicated ESG team, which writes regular ESG reports on companies held by Fidelity fund managers. The firm votes where it is possible to do so and quarterly voting reports are posted online, complete with rationales for votes against management and abstentions.

In June 2019, Fidelity launched its own proprietary ESG ratings tool. It scores thousands of companies based on their ESG credentials on a forward-looking basis, with investment analysts tasked with the job of ensuring the ratings are up to date. The ratings system was later updated to include an assessment of each company’s ability to manage negative externalities. Fidelity also developed a climate rating which highlights companies where engagement is most necessary if the firm is to achieve its aim to halve portfolio emissions by 2030 and reach net zero by 2050.

While Fidelity has made strides forward at the firm level, we don’t think this has fully fed through to the fund level. Although there is plenty of ESG information available to all Fidelity fund managers, we’re not yet convinced they all put it to full use.

This particular fund adheres to SDFR Article 8 disclosures, which means that it seeks to achieve its investment objective while promoting, among other things, environmental or social characteristics, or a combination thereof. The fund aims to achieve an ESG score greater than the ESG score of the benchmark.

Cost

This fund is available at an annual ongoing fund charge of 1.04%. Whilst this is a little higher than some more mainstream funds, we don’t think it’s unreasonable for a specialist fund such as this. The HL platform fee of up to 0.45% per year also applies, apart from in the Junior ISA where there is no platform fee.

Performance

Since the current manager took over the fund in 2013, it has returned 862.35%. This is a little behind the benchmark’s return of 917.30% over the same period, but well ahead of the fund’s peers which returned 549.85%. As always past performance isn’t a guide to future returns.

More recently, over the 12 months to the end of January 2025, the fund returned 25.22%. This was more or less in line with its peers, but a little behind the benchmark return of 29.58% for the same period.

By far the biggest contributor to this underperformance was the fund’s underweight position in NVIDIA. The manager currently owns no stock in the US semiconductor giant on the basis that it’s far too expensive. Over the course of 2024 this decision, which equates to an underweight relative to the benchmark of 14.5% cost the fund nearly 12% in performance (although some of this was made up by better decisions elsewhere in the fund).

Other detractors from performance included an underweight position in Broadcom which performed well, and a small overweight position in Samsung Electronic. The latter was bought after it sold off, but performed poorly as consumers failed to replace mobile phone handsets at the rate they were expected to.

It wasn’t all bad news though. A large underweight position in Microsoft actually helped performance when the stock failed to keep pace with some of the racier parts of the market. An overweight position in Siemens Energy was also helpful as the stock rallied and was eventually sold from the fund.