Why This Top-Performing Fidelity Tech Fund Doesn’t Own Nvidia Stock

Over
the
last
10
years,
the
fund
has
returned
21.4%
per
year
compared
with
17.3%
per
year
for
the
category,
20.9%
per
year
for
the

Morningstar
Global
Technology
index
and
15%
per
year
for
the

Morningstar
US
Market
index.

Even
as

Nvidia
stock
has
extended
its
rally
following
fourth
quarter
earnings,
Sohn
is
staying
on
the
sidelines.
“There
was
nothing
in
Nvidia’s
results
to
change
my
view”,
he
said
in
commentary
provided
to
Morningstar
on
February
27.
He
sees
the
current
environment
as
just
the
first
stage
of
a
long-term
AI
infrastructure
build
out,
and
that
in
the
meantime,
there
are
other,
more
attractively-valued
stocks
when
it
comes
to
investing
in
the
future
of
AI
technologies.

Performance
Hit
From
Avoiding
Nvidia
Stock

It’s
a
notable
call
for
any
technology
fund
to
not
own
any
stock
of
a
dominant
player
in
the
semiconductor
industry.
The
average
tech
stock
fund
holds
nearly
13%
of
its
portfolio
in
Nvidia
stock.
(The
category
includes
funds
focused
on
semiconductor
stocks.)
Fidelity
Global
Technology’s
benchmark,
the
MSCI
ACWI
Information
Technology
has
a
9.6%
weighting
in
Nvidia
stock.

But
the
lack
of
Nvidia
stock
especially
stands
out

given
the
massive
run
in
its
share
price.
Nvidia
stock
is
up
60%
so
far
in
2024,
240%
over
the
last
four
years
and
an
average
of
67%
per
year
for
the
last
10
years.

The
zero
weighting
in
Nvidia
has
contributed
to
a
slump
in
the
fund’s
performance
over
the
year.
The
fund’s
performance
ranks
at
the
53%
percentile
of
the
category
–
which
has
335
funds
–
for
the
past
year.

Over
the
past
twelve
months
Fidelity
Global
Technology
has
returned
31%,
compared
with
a
close
to
46%
gain
for
the
Morningstar
Global
Technology
index.
Still,
those
returns
put
the
fund
ahead
of
the
competition.
The
average
tech
fund
has
gained
+29.1%
and
the
broader
market
index
has
risen
close
to
25%.

Why
Fidelity
Global
Technology
Doesn’t
Own
Nvidia 

While
Fidelity
Global
Technology
did
own
Nvidia
shares
a
brief
period
of
time
between
July
2015
and
June
2016,
that
was
the
exception.

In
a
November

commentary
on
the
strategy,
lead
manager
Hyun
Ho
Sohn,
explained:
“The
fund
does
not
own
Nvidia,
which
is
a
good
company
run
by
solid
management.
However,
the
company
itself
is
in
the
technology
infrastructure
and
can
be
erratic
and
cyclical
–
which
I
think
the
market
underestimates.”

While
he
avoids
Nvidia,
the
manager
considers
the
theme
of
artificial
intelligence
to
be
a
valid
one:
“I
think
AI
is
an
interesting
technology
and
has
great
long-term
potential.
Many
companies
are
investing
in
setting
up
AI
infrastructure
and,
as
a
result,
we’re
seeing
increased
demand
in
areas
such
as
graphics
processing
units
and
AI
networks.”

That
said,
Ho
Sohn,
who
has
been
managing
this
strategy
since
March
2013,
believes
that
the
market
is
getting
a
little
carried
away
with
this
technology
and
its
promises.

“In
my
opinion,
AI
adoption
may
turn
out
to
be
slower
than
expected.
People
often
compare
generative
AI
to
the
iPhone
movement,
and
while
the
latter
was
an
innovative
consumer
product
that
saw
very
rapid
adoption,
generative
AI
is
a
business
application
–
one
that
will
need
to
be
considered
alongside
regulation,
compliance,
security
and
data
governance.
That’s
why,
despite
all
the
hype
around
AI,
we
haven’t
seen
many
companies
able
to
successfully
monetize
AI.
So
there
could
be
a
period
of
digestion
with
this
technology,
and
that’s
one
of
the
risk
factors
I’m
keeping
an
eye
on.”

After
Nvidia
Results

Following
Nvidia
stellar
results,
Ho
Sohn
was
still
unimpressed.

“Nvidia
has
delivered
very
strong
numbers
three
quarters
in
a
row,
led
by
data
centre
GPU
sales.
While
this
quarter’s
numbers
are
respectable,
they
are
not
quite
the
blow-out
numbers
seen
in
previous
quarters
–
in
fact,
the
magnitude
of
revenue
beats
is
actually
lower
than
in
the
last
two
quarters,”
he
wrote
this
week.

“Although
still
above
consensus,
Nvidia’s
latest
results
tell
us
that
it
is
getting
tougher
for
the
company
to
continue
beating
expectations
as
they
are
elevating
and
remind
us
of
the
law
of
large
numbers
–
the
eventual
convergence
to
a
true
value”

“It
is
difficult
to
predict
how
big
this
phase
will
be
because
end
demand
is
hard
to
forecast,
and
other
factors,
such
as
strategic
build,
peer
pressure,
and
supply
chain
tightness,
create
rush
orders,”
Sohn
said.

“Instead
of
chasing
stocks
already
priced
to
perfection,
I
continue
to
approach
the
AI
theme
in
a
stock-specific
manner,
looking
for
underappreciated
names”,
the
fund
manager
wrote,
mentioning
companies
in
the
hardware
space,
IT
services/software
businesses
“tied
to
AI
monetisation”
like

Elastic or

Nutanix.

Key
Morningstar
Fund
Metrics

• Morningstar
Medalist
Rating:
Silver

•
Morningstar
Rating:
5
Stars

•
Sustainability
Rating:
3
Globes

•
Total
Assets:
€18
Billion

•
Inception
Date:
1
September
1999

Which
Stocks
Explain
Its
Long-Term
Outperformance?

Although
it
does
not
own
any
Nvidia
shares,
the
fund,
which
holds
around
a
hundred
positions
at
the
moment,
is
a
very
long-standing
shareholder
in

Apple
(bought
in
2004)
and

Alphabet
(since
2005).
It
also
holds
shares
in

Microsoft
(2017)
and

Amazon
(since
2020),
and
is
a
long-standing
shareholder
in

Ericsson
(2011)
and

SAP
(2016).

The
fund
has
some
exposure
to
the
“Magnificent
7“,
but
these
companies
accounted
for
only
15%
of
total
assets
at
the
end
of
2023.

The
Magnificent
Seven
comprises
of
Nvidia,
Tesla,
Meta
Platforms,
Apple,
Amazon,
Microsoft,
and
Alphabet.

In
fact,
Fidelity
Global
Technology
has
also
been
underweight
Microsoft
and
Apple
compared
to
its
benchmark.
Not
only
that,
but
as
of
the
end
of
January,
the
fund
didn’t
own
stock
in
other
semiconductor
companies
which
have
been
posting
big
rallies:
Advanced
Micro
Devices,
Broadcom
and
ASML.

Performance
attribution
analysis
for
the
fund
over
the
last
10
years
shows
that
the
main
contributors
to
its
performance
have
been
Apple,
Microsoft,
Alphabet,
KLA,
a
semiconductor
equipment
supplier,
and
Samsung
Electronics.

The
main
detractors
to
Fidelity
Global
Technology’s
performance
were
Chinese
ecommerce
giant

Alibaba,
French
payment
company

Worldline,
and
other
non-US
tech
companies
like

ams-OSRAM,

Rakuten
or

Baidu.

An
analysis
of
Morningstar
data
shows
that
the
bulk
of
the
fund’s
current
positions
have
been
built
up
in
2020
(14%
of
the
portfolio
owned
that
year)
and
2022
(24%),
two
years
marked
by
episodes
of
high
market
volatility
in
particular
for
the
technology
sector.

This
fund
has
been
awarded
a
Morningstar
Medalist
rating
of
Silver,
a
positive
mark
which
owes
much
to
the
stability
of
the
management
team,
the
fund’s
performance
and
its
process,
but
certainly
not
to
the
management
fees.
At
1.88%,
the
fund’s
ongoigng
fees
are
well
above
the
average
of
all
the
funds
available
for
sale
in
Europe,
which
currently
stands
at
1.11%.

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