The Fidelity NorthStarŽ Fund returned 9.8% (Series B, net of fees). From a geographic perspective, the U.S. and Japan contributed the most to absolute performance while investments in Asia ex Japan detracted. On a sector basis, holdings in consumer discretionary, health care, and consumer staples added the most to absolute return. In contrast, the energy sector detracted from performance.
The Fund's largest geographic allocation is in the U.S., followed by Europe and Japan. The portfolio management team continues to favour investments in the U.S. relative to the rest of the world owing to attractive valuations. During the period, exposure to Japan was reduced as the portfolio management team reduced exposure to select holdings that had performed well. Allocation to Europe was marginally increased as the portfolio managers found attractively valued opportunities.
On a sector basis, the Fund's largest absolute allocation is to the consumer discretionary sector, followed by information technology. The portfolio managers favor retailers that are expected to have strong consumer demand and reasonable valuations. In information technology, the managers are focused on technology hardware and equipment companies that have high returns on capital, sustainable long-term businesses, and attractive valuations. Conversely, the Fund's smallest allocations are to the utilities, materials, and financials sectors. In general, the portfolio management team believes that there is more downside risk than upside potential in utility and financial companies. In addition, the portfolio managers believe that there is too much uncertainty over commodity prices and as a result, are reluctant to invest in resource-based companies.
The portfolio manager continues to hold a cautious view towards resources and Canadian housing, the latter of which also impacts banks. Accordingly, with the perceived risks in Canada's primary industries, Dan is finding valuations too high in other sectors and is looking globally for investment opportunities He is finding that similar companies in the U.S. are cheaper than those in Canada. Dan is also looking more towards Europe as the market volatility has created mispriced investment opportunities.