Mark Schmehl, Portfolio Manager, Fidelity Investments Canada ULC, Toronto
Sarahbeth Maney/The Globe and Mail
Mark Schmehl is not your conventional fund manager. He owns richly priced growth stocks, unloved value stocks and pre-IPO companies. It’s an opportunistic strategy that has bolstered returns in the three funds he runs—Fidelity Global Innovators, Fidelity Canadian Growth Company and Fidelity Special Situations—with total assets of $16 billion. And the eclectic mix in the Global Innovators fund has been a big winner lately, outpacing even the red-hot Nasdaq Composite Index in Canadian dollars. We asked the 48-year-old manager what he likes about spin-bike maker Peloton Interactive, and why he owns airline and cruise line stocks despite the COVID-19 pandemic.
What drives your eclectic investment strategy?
I tend to focus on parts of the market where there is substantial change—where incumbents are disrupted by new players, as in the cloud space. That can lead me to the expensive, sexy and even controversial names. Valuation, I find, is a useless tool. If you base your investment decisions on valuation, you are never going to make money. I typically play in the tails of the market. I am in expensive changing stocks, and in really cheap value stocks where things can get better. As for IPOs, that’s the definition of change—it’s companies doing something new.
You owned COVID-19 winners such as Amazon, Shopify and Zoom Video Communications before the virus hit. How will they do in a post-vaccine world?
I came into this virus perfectly set up. Those names are part of a secular shift that only accelerated with the virus. I’ve owned Zoom since the IPO, and it was a huge bet. Zoom enables people to work from home, while Amazon and Shopify let people shop from home. Some virus winners are cyclical. I bought coffee machine maker De' Longhi during the downturn because people were drinking more coffee at home. It doubled, but its stock will normalize when we get back to work.
Peloton, maker of internet-connected bikes and treadmills, is a top holding in your Global Innovators fund and a COVID winner. Are gyms in trouble?
I bought Peloton stock on the IPO because it is an interesting market niche, but I don’t think all gyms are necessarily in trouble. I used to go to a boutique fitness gym, Orange Theory, before COVID hit. I bought two Peloton bikes during the pandemic because my wife and I work out at the same time, but I find I am doing more yoga than ever with the Peloton app. I think [home fitness] is a secular trend, but I don’t know how powerful it is yet.
People still fear flying or taking cruises. Why do you own United Airlines, Southwest Airlines, Royal Caribbean Cruises and Norwegian Cruise Line?
The global portfolio is overly tilted toward virus winners, so I wanted to offset them. With a vaccine or herd immunity, or if something changes, the world will party like it has never partied before. The market is starting to figure out that the future earnings power these companies are going to have is enormous. The hard question is whether they are going to make it—they have a lot of debt and are burning cash. I can own this stuff because I have so much on the other side.
Why are miners such as Agnico Eagle Mines and Barrick Gold in your global fund?
Gold is a wonderful diversification tool. It’s a weird thing to say, but [miners] might actually turn into growth stocks. Their commodity price is going up thanks to government intervening with monetary easing, and their costs keep going down because oil is in secular decline. I think the gold price is going higher, and earnings are going to be better than expected.
Where else do you see opportunities?
There is an environmental economic wave going on, and it has blown through COVID-19 like the pandemic never happened. There is opportunity in carbon-neutral and carbon-destruction stocks, and anything dealing with greenhouse gases and global warming. The world is getting even hotter, and governments are spending a ton of money to fix the problem. I own electric car maker Tesla, but I can’t talk about all my holdings. If Joe Biden wins the U.S. presidency, this is going to be a super-powerful trend, because he is going to spend US$2 trillion on it.
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