Yahoo Finance Fund Beating 99% of Peers Bets on Troubled Businesses, AI Flops
(Bloomberg) -- Going against the tide and still winning has worked for Dmitry Solomakhin, a Fidelity International Ltd. fund manager. His next bet is on stocks that have been crushed by the rise of artificial intelligence.
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For years, Solomakhin has been taking bets on firms that have been beset by operational or financial problems. Positions in the likes of Rolls-Royce Holdings Plc have paid off handsomely, with his $1.1 billion global contrarian value fund beating 99% of peers in the past three months and mirroring the performance over the same number of years.
More recently, he has started picking up companies that seemingly count among the losers of the Nvidia Corp.-fueled AI frenzy.
“I call my long book a book of blow-ups,” Solomakhin said in an interview. “I look for companies that are completely out of favor. What I try do is find the very few instances where the market might be wrong.”
Rolls-Royce, the fund’s biggest holding as of the end of April, serves in particular as a vindication for Solomakhin’s approach. The UK engine maker struggled for years to recover from Covid-driven supply chain issues, before a transformation program and management changes fueled an almost 400% recovery since the end of 2022.
“I’ve held the position for many years, and that was painful,” he said. “It’s now done well, but I think there’s more to come.”
Bloomberg News has reached out to Rolls-Royce for comment.
Solomakhin, who joined Fidelity in 2006 as an equity research analyst for Europe and has run the global long-short diversified fund since 2012, said he holds a stock for three to five years on average. The portfolio has returned 19% in the past year, in line with the benchmark MSCI All-Country World Index’s advance.
One recent bet is US-based Concentrix Corp., a chat-bot operator which has slumped 38% this year in the wake of the rise in AI-adoption.
“People say that because of AI chat bots, you don’t need this type of service anymore,” Solomakhin said. “That’s a general statement and the nuance is very different. The market says it’s broken but I tend not to agree 100%.”
The decline in Concentrix’s share price reflected “an overreaction” to the impact of AI, the company said in response to questions.
“We believe that investors are mistakenly attributing the impact of the weaker macro-economic environment on our revenue to the impact of Gen AI,” a spokesperson said.
Other holdings include UK defense firm Babcock International Group Plc, which has rebounded by more than 170% since a low in January 2021.
Solomakhin is still waiting for some of his longest-held investments to make money.
Swedish network equipment manufacturer Ericsson is a “value trap,” he said. The firm has dropped about 20% over the past 10 years, compared with a rally of more than 80% in Stockholm’s benchmark index.
Ericsson declined to comment.
“I’ve been losing money on it for a long time, but I still have conviction and I’m not giving up,” he said. “I’m a very stubborn individual.”
--With assistance from Jillian Deutsch and Charlotte Ryan.
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