Many technology projects in industries such as retail and hospitality remain on hold because of COVID-19, although one Fidelity manager is bullish on the well-run companies in tech services he believes could continue to thrive longer term.
"I think the smart companies in technology services have managed to keep most employees, in anticipation of industry demand eventually improving—especially for projects related to digital transformation, real-time analytics, and cloud computing," says Zach Turner, co-portfolio manager of Fidelity® Select IT Services Portfolio (FBSOX).
Turner thinks certain services firms are doing a better job in 2020 of organizing talent to keep costs low and productivity high. Also, he says some are succeeding by consistently pleasing customers in a new and demanding environment.
One such company that checked the boxes for a "smart" services company, he says, is Genpact (G), a firm that outsources business processes. Its stock was a large fund holding as of July 31. Turner says Genpact’s management recently froze salaries, made better use of its consultants, and took other steps to control expenses. He says the company has seen continued demand for projects that help virtualize technology, services, and solutions, as well as for real-time predictive analytics.
Similarly, Turner says, WNS Holdings (WNS) is a services firm that helps companies such as health insurer Humana improve patient care and lower costs. He says WNS has seen declining work volumes in multiple sectors, although the company has continued to have conversations about new work with both new and existing customers.
Outside of business processing, Turner remains open to new ideas. During the spring, he added to the fund’s stake in UK small-cap S4 Capital (SCPPF), which offers advanced marketing and advertising technologies. The company formed in late 2018 through a reverse merger. One positive for this company, Turner says, has been that a large part of its revenue comes from technology firms, which have held up well during the downturn.
"I remain very focused on services companies I think could emerge stronger from this economic dip, while avoiding those I think are likely to lose share over time," Turner says.
Fidelity® Select IT Services Portfolio held securities mentioned in this article as of its most recent holdings disclosure. For specific fund information such as standard performance and holdings, please go to the fund ticker symbol link on this page.
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