Estimate Time1 min

Treading cautiously among overseas financials

After exposing some chinks in the armor of the global financial system in early 2023, Fidelity’s Alex Zavratsky points to pockets of opportunity that have arisen among financial firms abroad.

“In my view, after years of highly proactive regulatory oversight, coupled with the failures of smaller regional banks in the U.S. and the collapse of Credit Suisse in Europe, near-term disturbances in the financials sector have presented attractive entry points for opportunistic and risk-aware investors like me,” states Zavratsky, portfolio manager of Fidelity® International Value Fund (FIVLX).

As a result, exposure to financials stocks has risen to more than 32% of the portfolio’s assets as of the end of August, now representing its largest sector overweight.

In managing the fund, Zavratsky targets financially strong companies with solid balance sheets, stable returns on equity, high shareholder remuneration (via dividends and/or share buybacks) and the ability to generate sustainable free cash flows—a key value driver and determinant of intrinsic, or fair value.

In March, Swiss bank Credit Suisse (USOI) was purchased by rival UBS after collapsing due to poor risk management amid rising interest rates and a subsequent loss of confidence by depositors and shareholders alike, Zavratsky explains.

He points out that this event, in conjunction with major setbacks among several U.S. regional banks, resulted in depressed and attractive valuations within the financials sector.

“Still, I remain very risk aware. Governments have reacted quickly, and while the root cause of the problem is not asset quality, but liquidity, more turmoil and unease cannot be ruled out,” contends Zavratsky.

Given that, he has upgraded the portfolio’s exposure by favoring national banks with strong domestic deposit bases and higher inherent profitability, including KBC Groupe (KBCSF), Bank of Ireland (BKRIF), and NatWest Group (RBSPF), as well as financial services firms such as Mediobanca (MDIBF), Macquarie Group (MQBKY), and UBS (UBS).

Elsewhere within the financials sector, insurance remains a major area of focus amid continued strong pricing momentum in the aftermath of the pandemic, elevated natural disasters, and higher interest rates, notes Zavratsky.

Unlike banks, he underscores that property-and-casualty, or P&C, insurance providers have very short asset and liability durations and, as such, can reprice their policies quickly.

“In turn, I believe that insurance companies will be better able to defend their future earnings and, furthermore, while not entirely risk free, most insurers’ balance sheets are less sensitive to capital market movement, allowing for excess funds to be distributed to shareholders, a practice that investors favor,” says Zavratsky.

He cites the long-term track records of deep-value global insurance companies Munich Re (MURGY), AXA (AXAHY), and Tokio Marine Holdings (TKOMF), which were among his top holdings as of August 31.

For specific fund information, including full holdings, please click on the fund trading symbol above.

Alex Zavratsky
Alex Zavratsky
Portfolio Manager

Alexander Zavratsky is a portfolio manager in the Equity division at Fidelity Investments.

In this role, Mr. Zavratsky is responsible for managing Fidelity and Fidelity Advisor International Value Fund, Fidelity and Fidelity Advisor Total International Equity Fund, and Fidelity Series International Value Fund.

Prior to assuming his current role in September 2011, Mr. Zavratsky was a portfolio assistant on Fidelity Diversified International Fund. Previously, he managed various other Fidelity funds, including a Fidelity International Country Diversified Equity Fund, Fidelity Global Industrials Fund, Fidelity Global Natural Resources Fund, and co-managed Fidelity Global Telecommunications Fund. He has been in the financial industry since joining Fidelity in 1996 as a member of the Fixed Income division.

Mr. Zavratsky earned his bachelor of science degree from Boston College.

Interested in mutual funds?

Choose your criteria and get fund picks from Fidelity or independent experts.

More to explore

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.

Growth stocks can perform differently from the market as a whole and other types of stocks, and can be more volatile than other types of stocks.

Value stocks can perform differently from other types of stocks, and can continue to be undervalued by the market for long periods of time.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, all of which may be magnified in emerging markets.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.

The municipal market can be affected by adverse tax, legislative, or political changes, and by the financial condition of the issuers of municipal securities.

The securities of smaller, less well known companies can be more volatile than those of larger companies.

Some funds may use investment strategies involving derivatives and other transactions that may have a leveraging effect on the fund. Leverage can increase market exposure and magnify investment risk. Investors should be aware that there is no assurance that a fund's use of such strategies will succeed.

Leverage can magnify the impact of adverse issuer, political, regulatory, market, or economic developments on a company. In the event of bankruptcy, a company's creditors take precedence over its stockholders.

Changes in real estate values or economic conditions can have a positive or negative effect on issuers in the real estate industry.

As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.

Past performance is no guarantee of future results.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917