How one manager decides if pullbacks are buys

Patrick Venanzi believes that the coronavirus offers obstacles and opportunities.

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"My view of whether or not a market pullback is a buying opportunity usually depends on the stock and the price target I've developed based on longer-term earnings expectations," says Patrick Venanzi, portfolio manager of Fidelity® Small Cap Growth Fund (FCPGX).

He says the work involved in setting earnings targets and price targets on the market's calm days prepares him and guides his decisions on when to pounce amid volatility. He continues to evaluate his forward-looking targets based on business conditions.

In March, Venanzi notes that the CBOE Volatility Index® (VIX®) reached its highest point since the financial crisis of 2007−2009, as global markets anticipated slower growth due to the spread of the coronavirus.

He and the analysts with whom he works typically set 2 price targets for fund holdings and potential holdings. The first is a "fair value" target—how much they think the company is worth.

The second, he explains, is a "downside risk" target, or an estimate of where the stock could trade in a market downturn.

"We maintain targets in a spreadsheet that updates with market prices every day," Venanzi says, "which may afford us the opportunity to better spot the most favorable risk-reward situations in a very timely manner."

Venanzi is keenly aware of how market volatility has affected the fund more recently. His approach has been to remain patient and to continue to hold certain high-conviction stocks in the portfolio where his research points to potential for outperformance over time.

Learn more about this manager and his fund
Patrick Venanzi is portfolio manager of Fidelity® Small Cap Growth Fund.

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