Riding the rails to stay ahead of inflation
Amid elevated inflationary pressures, Fidelity’s Sammy Simnegar sees opportunity in Canadian railroad stocks.
- 04/11/2023
With inflation at levels not seen since the early 1980s, Fidelity’s Sammy Simnegar points out that it’s becoming increasingly important to invest in companies that can maintain their profitability in the face of rising costs.
“Canada’s two primary rail carriers, Canadian Pacific Railway and Canadian National Railway—fund holdings as of February 28—exemplify the kind of inflation-resistant businesses I like to own,” explains Simnegar, portfolio manager of Fidelity® International Capital Appreciation Fund (FIVFX).
In managing the diversified international equity strategy since 2008, Simnegar favors high-quality growth stocks benefiting from long-term “mega trends,” as well as his three “Bs”—brands, barriers to entry, and “best in class” management teams.
He notes that these railway carriers appeal to him because they can pass through increases in fuel and other expenses to their customers through fuel surcharges and consumer price index escalators.
What makes them even more attractive is the fact that elevated fuel prices and wage gains disproportionately penalize trucking firms, as this business tends to be much less fuel-efficient and more labor-intensive than rail transportation, according to Simnegar.
“Further bolstering the investment case for these stocks is Russia’s ongoing invasion of Ukraine,” he says. “The resulting supply disruption has boosted demand for Canadian exports, such as grain and potash, the latter being a critical fertilizer component.”
For better or worse, another favorable trend Simnegar points to is deglobalization—a byproduct of the COVID-19 pandemic—which he believes appears set to boost North American onshoring and energy production, thereby accelerating the volume of cargo transported by Canadian Pacific Railway and Canadian National Railway.
Simnegar is particularly optimistic about the former, given the company’s pending merger with U.S. carrier Kansas City Southern, which should be completed by midyear.
This union will create the only direct rail route from Canada to Mexico, offering unrivaled speed and service that is sorely needed to help ease supply-chain congestion, Simnegar contends.
These favorable tailwinds, even in the face of generationally high inflation, could provide both companies a source of long-term growth, Simnegar concludes.
For specific fund information, including full holdings, please click on the fund trading symbol above.
Next steps to consider
Research mutual funds
Get fund picks from Fidelity or independent experts.
Explore our fund offerings
See the range of available Fidelity Funds and learn the benefits of each asset class.
More from our portfolio managers
A collection of current insights from our portfolio managers.
Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.
Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.
As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.
Past performance is no guarantee of future results.
Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917