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Portfolio Manager Insights
Minimizing emotion, maximizing technology in investing
Fidelity’s Shashi Naik blends quantitative portfolio management with active investment oversight, using technology to help reduce emotion-driven decisions.
- To navigate the growing complexities of equity markets, Fidelity Portfolio Manager Shashi Naik and his team rely on a cutting-edge, model-driven approach that blends active management with benchmark-relative risk management, aiming to reduce the influence of human emotion.
- “By following a systematic approach, investments are guided not by guesswork, but by data, precision and innovation,” says Naik, who co-manages Fidelity’s comprehensive suite of Enhanced exchange-traded funds alongside Anna Lester and George Liu. “We believe objectivity, discipline and minimizing the human element are key to avoiding common investing pitfalls.”
- The ETFs cover a broad range of equity categories, including U.S. large-, mid- and small-cap core, growth and value, as well as developed international and emerging markets. Leveraging proprietary research from a dedicated group of quantitative analysts and a robust risk-management framework – rather than relying primarily on individual judgment – Naik and team evaluate thousands of companies in seeking to identify evidence-based drivers of performance.
- “A key point of differentiation is that traditional index-based offerings require investors to take the bad with the good,” he notes. “Our approach, by contrast, offers a more selective and thoughtful alternative.”
- Naik adds that these ETFs don’t just track an index. Rather, they are built with a clear view of benchmark characteristics and risk, while incorporating proprietary return drivers – referred to as factors – to objectively evaluate securities and construct portfolios with favorable relative return opportunities.
- He says the team’s approach is grounded in the belief that data and technology are essential to every aspect of investing. In practice, Naik says that their quantitative approach allows them to apply computational power to systematically uncover insights across a wide array of businesses, ultimately informing decisions about every stock within a fund’s investable universe.
- “It’s important to underscore that this is not something that can be created overnight,” he affirms. “It is so much more than just a few smart signals or models. It also requires access to clean, reliable data from multiple sources, along with systems to manage, update and validate those inputs. Without that foundation, even the most sophisticated investment ideas can break down.”
- As one example, Naik cites a signal that measures the sustainability of growth through the patent-filing process. Rather than relying solely on top-line metrics such as the number of patent filings, he and his co-managers dig deeper, using data to assess both the potential value of a company’s patent portfolio as well as the pace of innovation. They also can view this across multiple lookback periods to compare it with peers as well as the firm’s own history, he says.
- At the same time, Naik acknowledges that there are moments when data does not capture the full picture, such as when unforeseen risks emerge or news developments rapidly shift the landscape.
- “Those are the moments when a steady human touch can help, which is why an investment team provides daily oversight of the ETFs and makes adjustments when needed,” he adds.
- For example, during the 2021 meme-stock rally, the co-managers closely monitored and, in some cases, tightly managed holdings in stocks driven by social media fads, which made them quite challenging to evaluate quantitatively.
- “One common criticism of quantitative investing is that data is available to everyone,” Naik concludes. “I would argue that access does not equal advantage. What truly sets managers apart is how they use the data. In our case, it reflects the team’s willingness and ability to make extensive – and often surprising – use of information rather than emotion, giving us greater control and a clearer understanding of why our strategies work.”
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Fidelity active equity ETFs: Help construct a strong core
Fidelity active equity ETFs combine our industry-leading approach to security selection, research, and technology with the potentially greater tax efficiency and lower costs of an ETF.
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Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Sector funds can be more volatile because of their narrow concentration in a specific industry. Growth stocks can perform differently from other types of stocks and the market as a whole and can be more volatile than other types of stocks. Value stocks can perform differently than other types of stocks and can continue to be undervalued by the market for long periods of time. • Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. • Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. • In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation, credit, and default risks for both issuers and counterparties. • Lower-quality bonds can be more volatile and have greater risk of default than higher-quality bonds. • Floating-rate loans may not be fully collateralized and therefore may decline significantly in value. • The municipal market is volatile and can be significantly affected by adverse tax, legislative, or political changes, and the financial condition of the issuers of municipal securities. • The securities of smaller, less well-known companies can be more volatile than those of larger companies. • The funds can invest in securities that may have a leveraging effect (such as derivatives and forward-settling securities) that may increase market exposure, magnify investment risks, and cause losses to be realized more quickly. • Leverage can magnify the impact of adverse issuer, political, regulatory, market, or economic developments on a company. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Although the companies that the fund invests in may be highly leveraged, the fund itself does not use leverage as an investment strategy. Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Third-party marks are the property of their respective owners; all other marks are the property of FMR LLC.
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