Speaking to InvestorDaily, UK-based Fidelity portfolio manager Hilary Natoff said global equity markets are losing sight of the long-term value of businesses.
Ms Natoff is the co-author of the Fidelity white paper Investing in Demographics, which argues that global equity markets are not efficient at valuing companies that benefit from structural growth.
The paper points out that in 1940 the average holding period for a stock on the New York Stock Exchange was around seven years.
“By the time of the tech bubble in 2000 it had fallen to about one year; the average holding period globally is now under three months,” the white paper said.
In addition, a vast majority of sell-side analysts are limiting their earnings forecasts to three years in the future – with only a handful looking further than four or five years ahead, according to the paper.
Consequently, the market is inefficient when it comes to long-term predictions – particularly because it tends to ignore the compounding effect of long-term ‘winning’ stocks, said Ms Natoff.
“Investors able to identify earnings growth compounders exposed to structural growth themes can take advantage of these inefficiencies. For this, an understanding of demographics is critical,” the white paper said.
Ms Natoff manages the Fidelity Global Demographics fund with her fellow portfolio manager Nicky Stafford.
The fund is an unconstrained, thematic fund that invests in 50 to 80 stocks where demographic factors are the “single most important driver of growth over the next three to five years”.
According to Ms Natoff, demography is one of the few social sciences that can make forecasts with a relatively high degree of certainty – barring wars, epidemics or catastrophes.
“These are very powerful structural drivers that are changing the shape of the world that we know,” she said.
The Fidelity Global Demographics fund begins by identifying a demographic shift (either in a developing or emerging country), finding the industry that will benefit, and then singling out a company within the industry, said Ms Natoff.
The fund targets three major demographics drivers around the world: global population growth, the emerging middle class, and ageing populations.
Many of the companies the Fidelity fund invests in are in the healthcare or consumer sectors. Essilor International (which produces corrective lenses) and Nigerian Breweries are two examples of companies that have consistently rising revenues backed by demographic shifts, said Ms Natoff.
