Mutual fund giant Fidelity Investments Canada made a decisive push into domestic technology stocks during its most recent fiscal year, betting big across several funds on three companies in particular, including Shopify Inc.
The investment firm’s annual report for the year ended June 30, published last week, showed that 17 of its funds managed by the Canadian affiliate of Boston-based FMR LLC [Fidelity Management and Research] increased their stockholdings in Shopify – some dramatically – compared with the end of the previous year. For example, Fidelity Investment Canada’s Canadian Growth Company Fund had 5.4 million shares at the end of the fiscal year, up from zero the year before. Its Special Situations Fund, Canadian Fundamental Equity Multi Asset Based Fund and Canadian Balanced Fund added a combined 3.4 million shares of the Ottawa-based e-commerce software giant, up from none the year before.
Across all funds, Fidelity Investments Canada held 14.23 million Shopify shares, valued at $783.3-million, on June 30, compared with just 1.4 million shares worth $57-million a year earlier.
Meanwhile, Fidelity Investments Canada’s combined holdings in another Canadian online commerce software player, Montreal-based Lightspeed Commerce Inc., more than quadrupled to 15.8 million shares, up from 3.6 million, over the course of the year. Three funds did most of the buying: Fidelity’s Canadian Opportunities Fund, True North Fund and Greater Canada Fund. Lightspeed was the $4-billion Fidelity Canadian Opportunities Fund’s No. 1 holding, with 7.95 million shares as of June 30.
Fidelity Canada spokesperson Chris Pepper said in an e-mail that each fund’s portfolio managers make their own investment decisions and that “there is no ‘house view’ on tech.”
Fidelity fund managers made the big Canadian tech bets during a tough year for both Shopify and Lightspeed, whose stock values tumbled as rising inflation and interest rates hit their sector after valuations soared during the pandemic. While Shopify stock has recovered slightly in the past year, Lightspeed shares haven’t and now trade below prepandemic levels as it attempts to reach operating profitability this year.
Waterloo, Ont.-based enterprise software vendor Open Text Corp. was another popular stock at Fidelity Investments Canada, as 10 of its funds bought in or expanded their existing holdings, bringing the Boston investment manager’s aggregate holdings to nearly 2.8 million shares, up from slightly more than 6,400. Open Text, which primarily grows by acquiring other enterprise software companies, is also trading below prepandemic highs after rebounding from a selloff last fall. Enterprise software sellers such as Open Text have faced slower sales cycles, as giant corporate customers have become more cautious with spending during a period of economic uncertainty.
By contrast with the investments in Open Text, Fidelity’s Canadian funds collectively trimmed their aggregate positions in information technology services provider CGI Inc. by more nearly two million shares to hold 3.2 million shares in the Montreal company at the end of the year.
Fund giants buy and sell holdings every day, Mr. Pepper said, so the snapshot information of an annual report is already dated by the time of its publication nearly three months after the end of the fiscal year “and might not be representative of current positioning.”
But a year-over-year review of Fidelity’s holdings typically reveals interesting developments, including past decisions by Fidelity Investments Canada to mark down the valuations of privately held Canadian technology companies it had backed, including ApplyBoard, Inc., Hootsuite Media Inc. and quantum computing pioneer D-Wave Quantum Inc. before it became a publicly listed company.
For example, the overall weighting across many of Fidelity’s Canadian funds markedly increased the share of their holdings dedicated to Canadian information technology companies over the last year, stemming not only from their big bets on Shopify, Lightspeed and Open Text, but also from improved stock market performance by others including Constellation Software Inc.
Fidelity’s flagship Canadian Balanced Fund had 6.9 per cent of its assets in Canadian IT companies on June 30, up from just 2.1 per cent a year earlier, in contrast with most other sectors of the Canadian economy, whose relative share of holdings in the fund shrank. Six other Fidelity Investments Canada funds more than doubled their share of assets tied up in Canadian IT companies compared with the year before. While Canadian companies account for just 26.5 per cent of the Fidelity American Equity Investment Trust, down from nearly half a year earlier, Canadian information technology names saw their share of total assets nearly triple, to 8.2 per cent.
Meanwhile, two Fidelity funds whose Canadian technology investments had been primarily focused on privately held companies – Special Situations Fund and Canadian Growth Company Fund – made big swings into Canadian public tech stocks, buying big stakes in Shopify and supply chain software vendor Kinaxis, Inc. The latter bought so much Shopify that its $464.2-million stake as of June 30, up from nothing a year earlier, represented the $9.2-billion fund’s third-largest position behind Canadian Pacific Kansas City Ltd. and Nvidia Corp.