"Parts of the communication services sector could be less affected by the economic downturn than other market segments. I'm focused on companies within this niche I believe will continue to serve customers even if the coronavirus pandemic drags on," says Matt Drukker, portfolio manager of Fidelity® Select Communication Services Portfolio (FBMPX).
Communication services comprises internet-focused companies, media and entertainment companies, as well as firms that offer more utility-like subscription-based services such as home and wireless broadband.
Among wireless providers, Drukker has focused primarily on T-Mobile US (TMUS), a company he thinks is set up well to compete for customers in good times or bad. It was his third-largest holding as of April 30.
He's also maintained outsized exposure to video game publishers, which are not only experiencing increased demand in the current environment but also have secular tailwinds.
Demand for digital services has grown exponentially—seen in broadband subscription usage and speed upgrades—as consumer engagement shifts to video streaming, key online platforms, and interactive entertainment, especially with people spending more time at home and seeking connections.
Partly for this reason, he recently added to shares of Comcast (CMCSA), a leader in home-broadband connectivity, as well as to the fund's large stake in Facebook (FB), which made up 22% of assets at the end of April.
Disney may be slower to rebound due to the nature of its customer touchpoints, Drukker says. However, he notes demand could recover more quickly for leading global brands. At a certain valuation, he believes investors might get more than a fair payback for being patient.
"All are companies I think have aspects of their business that will benefit from rising engagement of broadband and the shift to more broadband consumption," Drukker says. "It's possible the services and behavioral trends driving earnings for these companies will accelerate and many of these companies can emerge from this crisis stronger."
Fidelity® Select Communication Services Portfolio, held securities mentioned in this article on April 30, 2020. As of this date, these companies accounted for the following percentages of fund assets: T-Mobile US, 4.75%; Comcast, 3.62%; Facebook, 22.20%; Netflix, 4.44%; Alphabet, 20.71%; Activision Blizzard, 4.73% and Walt Disney, 4.42%.
Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.
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