+ About Amit Lodha
Portfolio Manager, Fidelity Global Equities Fund
Appointed to the fund: 1 October 2015
Years at Fidelity: 12
Years in Industry: 14
Amit Lodha has been portfolio manager of the Fidelity Global Equities Fund since 2010 and has over 14 years of investment experience. Amit joined Fidelity as a research analyst in our Mumbai office in 2003. He spent his first three years with the company covering Indian equities (responsible for technology, media, telecoms, financials and retail sectors) before becoming the Asia (ex Japan) financials sector leader in 2006. In 2007, Amit joined the analyst team in London to become global commodities analyst and pick up coverage of basic materials stocks.
Prior to joining Fidelity in 2003, Amit spent three years as an equity analyst at Citigroup in Mumbai, covering the Indian telecoms, technology and media sectors. He started his career in the industry at KPMG Mumbai in 1997 where he left having risen to Senior Accountant in 2000.
Amit completed his Bachelor of Arts and Master of Arts in Commerce & Economics at Mumbai University. He is a qualified accountant from the Institute of Chartered Accountants (India) and a CFA charterholder.
Wednesday, March 30, 2016
By Amit Lodha
The world has many good companies. Most of these businesses, especially in consumer services, have competent management, an ability to innovate, respect for regulation and high service standards. But few of them will ever be great. What would make them great?
The answer is that great companies offer something unique, something different, that sets them apart from the competition. Stock investors can find these companies if they ask the right questions. These questions are simple enough to pose. Finding businesses that meet the criteria of being great, though, is difficult because great companies are rare.
Lindt & Sprüngli, the Swiss-based chocolatier and confectionery company, is one of those rare greats. Lindt & Sprüngli makes the world’s finest chocolate due in no small part to the way it controls all parts of its production process, from beans to the bar. That, however, is not what makes Lindt & Sprüngli great. What makes the company stand out is that it understands its core advantage and is comfortable with itself. It knows that it will never be the lowest-cost provider of chocolate, just the best. So the first question in the quest to find the great among the good is: Without being complacent, is the company comfortable with its position in the world because it contributes something unique?
That leads to the question of how a company arrives at a unique position. Innovation is probably the answer for most businesses. What is innovation? Innovation is simply creating a method, idea or product to fulfil an unmet need. Question two then is: Is the company fulfilling a vacant need?
The third trait among the great is an ability to personalise the consumer experience. This is not just putting customers first. It is giving them the feeling that the service provided is bespoke and meets their needs.
Facebook started out in 2004 as a photo-sharing site among friends. Its founders quickly saw that people want to interact regularly with their friends, to share what they are doing and to see what they are up to. The genius of Facebook is that it allows its 900 million users to have a “personalised” web page. This is personalisation on a scale before never considered possible.
Personalisation is taking off in medicine too. Health companies are creating bespoke treatments driven by the knowledge that due to differing human metabolisms and physiques the cure for a disease such as cancer can be different from one person to the next. Personalisation can come to the fore with basic consumer goods too. Starbucks staff write your name on the cup because this personalisation helps the company charge $3 for a drink produced by a 1 cent coffee bean.
So the third question is: Does the company offer something that is personalised?
Making it easy
We live in a world of data, noise and complexity that distract and confuse us. Companies that can simplify things around us, companies that enable us to make the right choices, they win.
Google is the best example of technology-based simplicity. The technology behind generating the search results is so complex that Google is one of the biggest employers of engineers in the world. Yet all they aim to do is make the outcome of a search so simple, few people (just 8%) need to click beyond page one to find what they need.
Some people could say that Amazon.com, with its 250 million products on offer, disproves this simplicity thesis. But a platform such as Amazon.com (or Google) needs to give the appearance that it offers the widest-possible choice. The reality is that Amazon.com’s top 100 drives people towards simple decisions among the top choices or best-selling products. Amazon.com has invested in its ‘fulfilment’ technology to deliver products on time and at low cost to the buyer, reducing the friction between buyers and sellers. So the fourth question for finding the great is: Does the company make it simple?
A company with a unique selling point, an innovation edge, an ability to personalise, that offers simple solutions has the ingredients to be a great one. However, to make sure, there is one more question that needs to be asked, one that is directed at management: If you had to focus on one thing to judge whether you are doing your job well, what would be it?
The likely answer for a consumer-goods company such as Unilever is market share. The corresponding answer for a consumer-services company such as Facebook would, logically, then be its share of advertising dollars.
Facebook executives, however, don’t respond like that. Their answer is “market share of user engagement”. As always, Facebook understands its challenge. The success of the company depends on how much time someone spends on Facebook versus competitor sites. The question of advertising market share flows from these engagement levels. It’s thinking like this that has helped Facebook become a great company.
Monday, March 14, 2016
By Amit Lodha
In today’s globalised world, all companies are part of a value chain and work in an ecosystem. Having a global research network like Fidelity’s provides local touch-points to each part of the value chain and allows us to build a superior understanding of the profit pool and the pricing power inherent in each value chain. This enables smarter investment decisions. Importantly, having access to a global research engine allows us to understand disruption and anticipate its impact on other industries and regions faster than the market.
Over my tenure on Fidelity Global Equities Fund, we have identified a number of the pricing power-winners of this brave new world. Take the case of portfolio holding Facebook. The company’s ability to find a non-intrusive method of monetising its huge user base, combined with a series of fortuitous acquisitions (Instagram and WhatsApp), has meant it now owns the entire landscape of social interactions. (See table). This gives it pricing power. Notably, Facebook’s exponential growth path has dented the pricing power of companies in other sectors, such as news media and TV, by causing behavioural changes in how customers access content.
Top Apps of 2015: Worldwide downloads highlight Facebook’s dominance
Another example, portfolio holding Amazon.com’s pricing power comes from being the most efficient and lowest cost provider of service in its chosen verticals. The e-commerce and technology infrastructure company has three main areas of differentiation: Marketplace, Amazon Web Services and Core Amazon Prime.
Retail platform Marketplace has high competitive barriers to entry and scale, and has driven massive change, using high traffic on Amazon sites for the benefit of a larger number of subscribers. Amazon Web Services, meanwhile, has created an industry by becoming the backbone of the move to cloud computing. The Core Amazon Prime offering uses a tried/tested membership model perfected by Costco to build high-quality customer service.
Fidelity’s research team has identified this company’s powerful virtuous circle or “flywheel.” The bigger such a company gets, the more it can offer to its customers, attracting more customers, making them bigger and so on. Importantly, by offering cutting-edge proprietary technology and opening its platform to everybody, we believe Amazon has altered the usage of hardware and server time and has made renting IT infrastructure a reality. This has implications on the pricing power of firms such as Oracle, SAP and IBM, which is based on hardware sales.
Elsewhere, tower company SBA Communications has emerged as a pricing-power winner in today’s world. With the Apple iPhone having changed the paradigm of computing power on the phone, mobile devices are being used to consume information and entertainment. Data usage has multiplied manifold and the value of SBA’s mobile tower assets has grown proportionately to this increase in data consumption.
The examples above highlight those companies benefiting from technological change. However, there are still others that derive their pricing power from products or services with unique characteristics. In fact, holdings like data and analytics provider Verisk Analytics, a high-quality company with a moat that stems from its control of data in the insurance segment, exemplify this. Similarly, gaming business Nintendo is the owner of the world’s best game intellectual property and is unlocking value on non-Nintendo platforms. Peers Activision Blizzard and Square Enix are also well positioned to benefit from the gaming cycle and the secular shift to digital.
Notably, this is not a trend restricted to technology companies. Take industrials business Cognex, which makes machine vision products for factory automation and surface inspection. The company’s machines can read simple and advanced bar codes that allow the tracking of items around factories and distribution centres. Notably, the software component of the solution is the key differentiating factor, since interpreting the captured data is difficult.
Elsewhere, within the pharmaceuticals sector, the unique nature of their drug portfolios gives companies like Gilead Sciences – which has found a cure for Hepatitis C rather than offering a palliative offering – pricing power. On the flip side, those like generics business Teva Pharmaceutical Industries, Mylan and Sun Pharmaceuticals derive pricing power because of their ability to be the lowest-cost suppliers of certain drugs. Thus, opportunities abound but they need more effort to find. Also, in a fast changing world, one needs to be razor focused on the sustainability aspect of the pricing-power equation.
This is evident when it comes to the broader commodity sector, which is cyclical in nature. Until recently, the Chinese fixed-asset boom and resultant short fall in supplies had created significant pricing power. This has now completely reversed. Similarly, at this point in time, the energy sector lacks pricing power due to low oil prices but beneficiaries include airline and shipping businesses. This is expected to reverse once supply cuts allow pricing power to move back in favour of producers.
Similarly, some financials have lost pricing power derived from the liabilities side in the low-interest-rate environment. Nonetheless, stocks like UBS Group, which has a private banking franchise with increasing inflows and a wealth-management business with stabilising margins, and Julius Baer Gruppe, which has a high-quality franchise with expected higher-than-average net new money growth, offer considerable upside. Similarly, Indian banks HDFC Bank and Kotak Mahindra Bank are offering interesting technology-led financial-inclusion solutions in emerging markets.
At the end of the day, the global equities universe is the richest opportunity set you can find and, as evidenced above, we look to invest in companies which are long-term winners with pricing power and yet available at reasonable valuations.
Amit Lodha is the portfolio manager for the Fidelity Global Equities Fund.