Overview
Analyst Survey 2025 (full report)
I’ve been an equities investor for most of my career but a story I heard recently from my fixed income colleague James Durance tells you a lot about the importance of research in our business.
It dates back to early 2024, when official interest rates were at their highest in years, prompting a flight to quality across fixed income markets as investors wondered how borrowers would handle higher funding costs.
James, who specialises in global income and European high-yield strategies, was looking over a batch of research from one of our analysts when he spotted something. The numbers from corporate real estate researcher Othman El Iraki showed that almost all of the European and UK investment grade issuers he had assessed would still be able to service their debt under a higher rate environment. Importantly though – and contrary to the market’s instincts at the time – the same was also true for the sector’s junk-rated credits. And these were being shunned by many investors.
The result was James’s most profitable trade of 2024, and the lesson is an obvious one: in a business centred around the management of risk and the search for momentary opportunities, timely and strong analysis is indispensable. The detailed modelling Othman had done on tolerances for higher rates showed something most in the market had missed. James and his team started paying extra attention to real estate prices as a result. When they saw signs of stabilisation, they began to add to their holdings in the space.
Those holdings weren’t just plain vanilla corporate credit. They bought some convertible debt and took restructured equity from a default in one business. Their conviction about the businesses, thanks to Othman’s thorough research, led to the team’s second-biggest allocation of 2024, and some of their best returns.
Our annual Analyst Survey gives you a taste of what Fidelity International’s research is telling us right now. It gels the views of more than 100 analysts who cover sectors and companies across the world in detail and in depth.
Othman is here. So are Alex Laing and Ketul Nathwani, who predicted the rise of power grid investment globally last year and the resulting outsized returns from the big utility companies. And Akshen Thakkar, whose detailed analysis convinced portfolio managers to buy an Indian air conditioner company when it issued new stock in late 2023 – up an astonishing 172 per cent in the months since.
Past performance is not a guarantee of future returns, but as the chart below shows, the long-term numbers suggest strong research helps. This year’s survey reflects the knowledge generated by thousands of meetings and calls with the leadership teams of hundreds of global companies.
Chart 1: Research has delivered over the long term
Global equity research performance
Regional returns weighted by market cap of companies rated either buy/outperform or sell/underperform. Value add calculated vs regional indices. Past performance is no guarantee of future returns. Source: Fidelity International. Data as at 30 September 2024.
In aggregate, our findings show company managers worldwide are far more optimistic than they have been in either of the past two years. Expectations for returns on capital are better than at any point since the pandemic, while several sectors expect the change of administration in the US to deliver a much-needed boom in M&A deals.
Chart 2: Optimism on top
Analysts positive on returns on capital, M&A, and management confidence
Over the next 12 months: “How would you describe the confidence level of your companies’ management teams to invest in their businesses compared to the previous 12 months?”; “What is the outlook for overall returns on capital?”; “Do you think M&A will be any more or less prevalent among your companies?” Source: Fidelity International, January 2024.
One notable conclusion from the survey is that the AI revolution’s big breakthrough as a generator of profitability and new revenues for companies beyond the tech sector is yet to arrive. And is unlikely to do so this year. The industrials sector meanwhile has the highest proportion of analysts that expect their companies to perform better this year compared to last. And while reflation trades may have dominated the end of 2024 for markets, outside of the US, analysts expect inflation to continue to retreat as a priority for companies.
As well as these broader themes, we lay out a handful of case studies here that show the direction of travel across several sectors and regions, giving more insight into the work our analysts do day after day.
As investment managers like James will tell you, it’s worth reading.
