It’s worked to the advantage of many investors to concentrate in U.S. stocks, which have outperformed international markets for most of the past decade, says Fidelity’s Alex Zavratsky. So, he understands some investors’ hesitation when he explains the timely, bargain-priced opportunities he’s finding overseas.
“The home-country bias is partly why some people still won’t embrace the international market, and it’s part of the reason I see such low-priced stocks outside the U.S.,” says Zavratsky, co-manager of Fidelity® Total International Equity Fund (FTIEX), which seeks to offer investors “one-stop” international exposure.
The fund is structured into four subportfolios—developed value, growth and small cap, and emerging markets—with dedicated exposure across a broad range of market capitalizations, investment styles, and geographies outside of the U.S.
The investment team seeks attractively priced stocks of companies with a strong balance sheet, a stable return on equity, recurring free cash flow, and a plan to return excess earnings to shareholders through dividends, stock buybacks, or both.
Zavratsky says the best opportunities he‘s finding for the fund’s developed value sleeve are old-economy stocks in the industrials, materials, and financials sectors that struggled through much of the pandemic, but are poised to rebound in an inflationary market. He also sees companies that could benefit from increased government spending.
Many of these names are tied to green energy, he says, as well as the need to rebuild infrastructure, including providers of steel, copper, iron ore, and cement.
Deep-value plays that are making plans to pay off debt and generate more cash in an improving economy make up a large portion of the fund’s investments at the end of May, according to Zavratsky.
As an example, he cited Germany-based HeidelbergCement (HLBZF), which he thinks could benefit from a rebound in non-residential construction. The company is more leveraged than many of its peers, which is partly why its stock trades at a low multiple, he says. Yet Zavratsky thinks the company could see increased free cash flow in a rebounding and inflationary market. He adds that HeidelbergCement is tied to the green investing theme, based on its plan to build the world’s first carbon-neutral cement plant.
Zavratsky also pointed to “stable compounders,” or stocks of well-capitalized companies with a healthy or improving return on equity and stable earnings. Among them was Zurich Insurance Group (ZFSVF), which he thinks could benefit from a management team that’s focused on improving pricing, bolstering the company’s balance sheet, and returning value to shareholders through dividends.
Lastly, he noted investments in special situations—or companies that are misunderstood, restructuring, or perhaps working on overcoming legal liabilities—including Paris-based media conglomerate Vivendi (VIVEF), which holds valuable music rights and could benefit from plans to sell off part of its Universal Music Group business.
“Many international value stocks remain super cheap, in my view, which I don’t think will last if global economic growth continues to improve,” Zavratsky says.
Fidelity® Total International Equity Fund held securities mentioned in this article as of its most recent holdings disclosure. For specific fund information, including holdings, please click on the fund trading symbol above.
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