"A choppy market has provided opportunity to bolster holdings in stocks I believe could have long growth runways ahead," says Ali Khan, portfolio manager of Fidelity® Select Software and IT Services Portfolio (FSCSX).
In addition to maintaining his significant stake in industry bellwether Microsoft (MSFT)—by far the fund's largest position at roughly 27% of assets as of April 30—Khan cited several smaller tech names, such as Gartner (IT) and Trimble (TRMB), to which he recently increased exposure. These names are illustrative examples of what Khan has been looking for in his investments: A strong, longer-term thesis, limited exposure to the shrinking travel and energy sectors, and attractive valuations.
Regarding Microsoft, Khan says the software giant has warned of slowing sales of personal computers—which affect its Windows franchise and sales of Surface tablets—but the warning doesn't overshadow his belief that the company's Office 365 and Azure franchises could continue to drive growth. Partly for this reason, he viewed Microsoft as having one of the best combinations of fundamentals and valuation in software.
Gartner's shares fell sharply in March, partly due to concern regarding canceled technology conferences hosted by the company. However, Khan believed Gartner's variable-cost model could help it maintain positive cash flow and keep its balance sheet from deteriorating. He saw potential for attractive growth roughly 5 years out. "I believe the broader tech sector could come out of a downturn very strongly and that Gartner likely will continue to be a trusted partner for the companies it serves," Khan says. Trimble makes navigation and positioning software used by customers in the construction, transportation, utilities, agriculture, and forestry industries, as well as governments. The stock took a short-term tumble because many of these groups are especially sensitive to a downturn in the economy, Khan notes. Yet he thought some investors overreacted. "I believe Trimble offers technology that is mission critical and unlikely to be replaced or turned off," he says.
"I'm mindful of what has been happening in the world and the financial markets, but I take a long view when building the portfolio," Khan says. "From my experience, I know the most important technology trends usually play out over decades, not quarters."
Fidelity® Select Software and IT Services Portfolio held securities mentioned in this article on April 30, 2020. As of this date, Microsoft composed 26.64% of fund assets, Gartner composed 1.04% of fund assets, and Trimble composed 0.83% of fund assets.
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