The stocks of semiconductor makers that supply a wide range of chips to enable electric vehicles are well-positioned to grow, according to Fidelity’s Julia Pei, even if U.S. economic growth and demand for EVs slow in the coming months.
“I think demand for the chips made by certain semiconductor companies for electric vehicles is likely to remain robust and outweigh a potential slowdown in the global economy and EV production,” explains Pei, portfolio manager of Fidelity® Environment & Alternative Energy Fund (FSLEX).
The fund primarily invests in companies engaged in business activities related to alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies, or other environmental support services.
In managing the fund, Pei looks for businesses that provide solutions and technologies to enable the green transition. Recently, she has sharpened her focus on the stocks of companies that she believes are likely to hold up best amid the potential for an economic recession and further contraction in manufacturing activity.
“These are just a couple of the cyclical headwinds that could influence the fund’s economically sensitive investments,” says Pei, noting that the ISM Purchasing Managers Index—a measure of economic trends in the manufacturing and services categories—has already spent several months below 50, indicative of contraction in manufacturing activity.
Although near-term uncertainty could fuel equity-market volatility, she invests in companies exposed to certain resilient technologies with compelling long-term prospects, including select chipmakers.
“Despite a likely slowdown in overall global vehicle production and even potentially EV unit volumes, chipmakers should be relatively well-positioned,” Pei says. “Because EVs require more chips, chipmakers may generate as much as double the revenue from an EV as compared with a traditional internal combustion engine, insulating revenues from a volume decline.”
That partly explains her favorable outlook for chipmakers that serve the EV industry, which she says may be able to grow earnings in a challenging economic backdrop, given that the secular tailwind of EV demand is likely to far outweigh economic headwinds.
At the end of July, Analog Devices (ADI) and onsemi (formerly On Semiconductor) (ON) were top portfolio holdings and meaningful overweights versus the industry benchmark. The fund also has built a sizable stake in NXP Semiconductors (NXPI). All three companies serve the EV industry.
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Julia Pei is a research analyst and portfolio manager in the Equity division at Fidelity Investments.
In this role, Ms. Pei is responsible for equity research coverage of environmentally thematic industrial, technology, and energy stocks. She is also manages Fidelity Environment and Alternative Energy Fund.
Prior to joining Fidelity in 2018, Ms. Pei was an associate at Equity Group Investments, the Zell family office. She has been in the financial industry since 2012.
Ms. Pei earned her bachelor of arts degree in economics from The University of Chicago and her master of business administration from The Wharton School of the University of Pennsylvania.