Turnaround for Fidelity Managed International Fund

Performance of the Fidelity Managed International Fund has recovered significantly since Brenda Reed, a 16-year veteran of Fidelity International, took over the portfolio nearly five years ago.

Under Reed's stewardship Managed International has beaten the market by more than 9 percentage points over the past 12 months. Returns from the fund over this period are -0.64% against a near 10% fall in the MSCI World Index. The fund is now first quartile over one and two years and tops the second quartile over three and five years.

As the £363 million fund approaches its fifth anniversary under the management of Reed, Fidelity intends to change its name to Fidelity Global Focus to reflect more accurately Reed's approach to investment. The name change is subject to approval from the Financial Services Authority.

Reed attributes the top-quartile performance of the past 12 months to a combination of her ability to find attractive companies in difficult conditions and her avoidance of areas of market weakness such as financials. A relatively high exposure to companies in the emerging markets (7.2% of the portfolio at the end of May) has also helped the fund to beat the market and its rivals.

She says: "Fertiliser and other companies related to agricultural production have done very well as food prices have increased. Several of my holdings in oil and oil-related companies have also been very strong." Her top ten holdings at the end of May included energy group E.ON and Oil Search - Papua New Guinea's largest company and a key partner in the Liquefied Natural Gas project.

Reed continues: "Geographically, many of my best performers have come from emerging markets where growth rates are, in general, much higher than in developed markets. The developed world is still suffering from the effects of the credit crisis but some share prices now reflect a good deal of bad news. It will be important to take advantage of mis-priced assets that emerge."

Investment process

Brenda Reed takes a bottom-up approach to global stock-picking, allowing the stock selection to drive sector and regional exposure. Fidelity covers 90% of the 35,000 publicly-quoted companies worldwide. Reed screens for opportunities by looking at the best ideas of global sector portfolio managers, regional fund managers, as well as quantitative specialists and sector analysts.

Stock ideas fit one or more of three categories: 1) growth - companies with under-appreciated growth trading at reasonable valuations; 2) cyclicality - situations where the market has not fully priced in a recovery in earnings; and 3) undervaluation - stocks that look cheap in absolute terms, relative to their peers or are a special situation.

An example of the application of this approach is Burger King, the fast-food chain. Reed's quantitative screening flagged the company as a possible buy in November 2006. She and an analyst then met the management to talk through its plans to restructure and expand overseas. Fidelity commissioned a survey of Burger King franchisees to assess their willingness to implement the new measures. Reed took a position in the stock the same month. Since November 2006 the shares have risen 43%, out-pacing the MSCI AC World Consumer Staples index which rose just 4%.