"I continued to see growth opportunities tied to cloud computing and other tech trends early in 2020, but I became more cautious than usual for reasons not related to the coronavirus," says Ali Khan, portfolio manager of Fidelity® Select Software and IT Services Portfolio (FSCSX).
Beginning in January, Khan began to become more concerned about valuations in certain tech segments. He also thought year-over-year revenue and earnings comparisons in 2020 looked more difficult for some companies.
Khan added that the software & services industry gained about 41% in 2019, according to MSCI, although this mainly happened because of expanding stock multiples, as opposed to earnings growth.
As a result, Khan said he began to pare back holdings in particular segments while maintaining minimal stakes in companies with high capital expenditures. That said, he boosted his focus on application software companies, many of which produce steady cash flows because of their subscription revenue models.
Looking ahead, Khan says his focus on stock selection remains his key to navigating a difficult environment.
"The direction of the stock market has changed, but my process hasn't," he says. "I'm still looking for well-positioned companies I can purchase at the right price, in order to help protect from downside risk and to help capture the upside of longer-term trends. Volatility can present opportunities to buy companies in which I have strong convictions for the coming years."
Learn more about the manager and his fund
Ali Khan is portfolio manager of Fidelity® Select Software and IT Services Portfolio.
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