Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 438

The leading 2022 themes for global mid-sized companies

We expect global mid-cap equities to continue generating healthy returns for investors, although at a more moderate and sustainable level relative to the gains since the bottom of the pandemic-induced crash of March 2020. The initial phase of a market upturn is usually driven by expansion, as investors anticipate the recovery. This period usually produces explosive gains. However, as the economy recovers and business fundamentals improve, the earnings recovery takes over as the primary driver of shareholder returns.

This is where we are now. There is usually some increase in volatility as we move into this phase and it is quite typical to have mild market pullbacks from time to time.

The benefit that the equity market still holds is its real earnings recovery and growth outlook relative to low-yielding bonds.

Potential surprises in 2022, positive or negative

In our 2021 outlook, we cautioned that inflation was likely to pick up, and it did. Some of this was due to temporary or transient factors that would subside over time once the lockdowns ended and manufacturing and global supply chains normalised. In recent weeks, company management teams have warned about rising labour costs, which tend to be sticky. Labour cost is a key component of inflation, alongside housing.

Bond markets have already anticipated that central banks will need to act sooner than they had previously communicated. However, equity markets have yet to adjust, as rising yields impact equity valuations, while increased labour costs can impact corporate profit margins. This could lead to some choppiness and volatility as the equity markets digest this new reality.

Our holistic investment approach in 2022 will consider the risk of broad-based inflation, higher debt costs, rising commodity and property prices, and tighter labour markets, as well as increasing wages and higher levels of competition.

The themes and sectors of opportunities and risks

The Global Future Leaders strategy scans the global small and mid-cap universe for the leaders of tomorrow and explores a range of themes that are expected to experience structural growth.

The table below provides insight into the sectors and associated themes that we are exploring.

The highest levels of conviction and avoidance

The best opportunities lie in high-quality companies with competitive advantages in good industry structures. These are managed by competent individuals and bought at reasonable prices. Such businesses will have some inherent pricing power, allowing them to protect margins by passing on increases in labour costs to consumers.

Areas that we would deem vulnerable are loss-making businesses or those with valuations that exceed their peers. The former require access to outside capital to keep funding their aggressive growth ambitions at a time when this funding is becoming more expensive. At the same time, the latter may experience significant corrections in their stock prices as discount rates continue to increase.

The impact of sustainability factors on returns

Sustainability is one of the three key pillars we use to assess companies (the other two being viability and credibility). In looking for the future leaders of tomorrow, we are primarily interested in finding firms that operate under sustainable business models.

Businesses that harm the environment fail to respect their employees, customers or society at large. Furthermore, these companies do not honour the rights of minority shareholders and are filled with executives whose primary aim is to enrich themselves at the owners' expense. In our view, these names have a finite corporate life.

Within the context of the portfolio and at an individual stock level, we will refuse to invest in harmful corporations that include tobacco or cluster munitions whilst simultaneously investing in businesses that enable clean energy (e.g. solar). Our carbon footprint at a total portfolio level is a fraction of that seen in our benchmark. 

The Global Future Leaders strategy scans the global small and mid-cap universe for the leaders of tomorrow and explores a range of themes that are expected to experience structural growth. We have an acute focus on sustainability, pricing power, market structures, brand strength, product differentiation and valuation discipline.

 

James Abela and Maroun Younes are Portfolio Managers of the Fidelity Global Future Leaders Fund at Fidelity International, a sponsor of Firstlinks. This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL 409340 (‘Fidelity Australia’), a member of the FIL Limited group of companies commonly known as Fidelity International. This document is intended as general information only. You should consider the relevant Product Disclosure Statement available on our website www.fidelity.com.au.

For more articles and papers from Fidelity, please click here.

© 2021 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

 


 

Leave a Comment:

RELATED ARTICLES

Mid-caps deserve a closer look

The far-flung past as prologue

Three factors shape whether we are at the bottom yet

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

Latest Updates

Investing

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

Investment strategies

A closer look at defensive assets for turbulent times

After the recent market slump, it's a good time to brush up on the defensive asset classes – what they are, why hold them, and how they can both deliver on your goals and increase the reliability of your desired outcomes.

Financial planning

Are lifetime income streams the answer or just the easy way out?

Lately, there's been a push by Government for lifetime income streams as a solution to retirement income challenges. We run the numbers on these products to see whether they deliver on what they promise.

Shares

Is it time to buy the Big Four banks?

The stellar run of the major ASX banks last year left many investors scratching their heads. After a recent share price pullback, has value emerged in these banks, or is it best to steer clear of them?

Investment strategies

The useful role that subordinated debt can play in your portfolio

If you’re struggling to replace the hybrid exposure in your portfolio, you’re not alone. Subordinated debt is an option, and here is a guide on what it is and how it can fit into your investment mix.

Shares

Europe is back and small caps there offer significant opportunities

Trump’s moves on tariffs, defence, and Ukraine, have awoken European Governments after a decade of lethargy. European small cap manager, Alantra Asset Management, says it could herald a new era for the continent.

Shares

Lessons from the rise and fall of founder-led companies

Founder-led companies often attract investors due to leaders' personal stakes and long-term vision. But founder presence alone does not guarantee success, and the challenge is to identify which ones will succeed in the long term.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.