The temptation for many when confronted by negative sentiment is simply to exit the market. Recent events in Russia highlight how swiftly an indiscriminate sell-off can take place. However, acting on sentiment would be doing our clients a disservice. Every position we hold in our portfolios is there for a reason and is subjected to ongoing reassessment. Unless macroeconomic or political shocks severely impact the long-term operating environment of a company, we will stay true to the conviction that made us invest in the company in the first place.
So continuing with Russia as an example, we have held a residual overweight position for a long time in the Fidelity Emerging Markets Fund. The country is renowned for a plethora of cheap companies, but many of them are cheap for a reason – there are political and corporate governance risks that you assume when investing in Russia. Most of our Russian holdings are supported by a very attractive dividend yield which delivers a significant proportion of our total shareholder return to us in cold, hard cash. Indeed, compelling dividend yields, coupled with recent valuation compression, can provide a sound footing for generating future shareholder returns.