This year’s shifting tariff landscape, along with heightened geopolitical risk around the world, have fueled an increase in equity market volatility and led to attractive prices for higher-quality companies, according to Portfolio Manager Dan Sherwood.
“I‘ve been using periods of elevated market volatility to upgrade the quality of the portfolio,” says Sherwood, who manages Fidelity® Mid Cap Stock Fund (FMCSX). “For the stocks that I’ve lost confidence in, I’ve trimmed and redeployed the capital into new ideas in which historically I’ve been unable to get comfortable with the (previously elevated) valuation.”
In managing the diversified domestic equity strategy, Sherwood focuses on companies valued at $1 billion to $10 billion across the growth-to-value universe. He favors fundamentally strong companies in which Fidelity’s earnings forecast deviates from Wall Street’s consensus; compounders, where he has a differentiated view of the sustainability of the growth rate; and mean-reversion stocks, where he challenges prevailing assumptions on the timing, duration or magnitude of the cycle.
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A high-quality company that Sherwood says he’s favored is online pet food retailer Chewy (CHWY). The backstory here is that this stock thrived during the COVID-19 pandemic, he explains, when everyone was sheltering at home and there was a huge increase in pet ownership. Then, as the pandemic eased, Chewy’s business fell off sharply, and the firm had a couple of weak years.
“Chewy has recently returned to earnings growth,” Sherwood notes. “Yet I believe the market is undervaluing the company’s improved prospects – particularly given its minimal exposure to tariffs.”
Commvault Systems (CVLT) is another somewhat recent addition to the portfolio. The company is a provider of on-premises and cloud data storage and recovery technologies. Like many software firms, Commvault has undergone a transition the past few years from one-off product sales to a subscription program, enabling steadier revenue and earnings growth, according to Sherwood.
“When these two stocks pulled back on general market weakness, I saw an opportunity to purchase them at more-attractive valuations,” says Sherwood. “Each represents my recent efforts to invest in high-quality companies that I believe have a path to better-than-expected revenue and earnings.”
For specific fund information, including full holdings, please click on the fund trading symbol above. Securities mentioned were fund investments as of July 31.
Dan Sherwood is a portfolio manager in the Equity division at Fidelity Investments.
In this role, Mr. Sherwood manages the Fidelity New Millennium Fund and co-manages Fidelity New Millennium ETF, Fidelity Advisor Mid Capp II Fund and VIP Mid Cap Portfolio.
Prior to assuming his current responsibilities, Mr. Sherwood was a research analyst responsible for covering a variety of software and IT services companies. Additionally, he was a research analyst on the Real Estate team, where he covered various real estate investment trusts (REITs) and other real estate related companies.
Before joining Fidelity in 2008, Mr. Sherwood was a vice president at Merrill Lynch Institutional Equity Trading, and an analyst for Merrill Lynch Institutional Equity Sales. He has been in the financial industry since 1998.
Mr. Sherwood earned his bachelor of arts degree from Yale University and his master of business administration degree from The Wharton School of the University of Pennsylvania.