Dmitry Solomakhin, a fund manager at Fidelity International Ltd., has been defying conventional wisdom and finding success in his investment strategies. His latest venture involves betting on stocks that have been adversely affected by the rise of artificial intelligence.
Solomakhin has a track record of investing in companies facing operational or financial difficulties, such as Rolls-Royce Holdings Plc, and has reaped significant rewards. His global contrarian value fund, valued at $1.1 billion, has outperformed 99% of its peers in the last three months, maintaining consistent performance over the years.
In his latest move, Solomakhin has started to target companies that appear to be losers in the AI boom led by Nvidia Corp.
“I refer to my portfolio of long positions as a collection of blow-ups,” Solomakhin explained in an interview. “I search for companies that are currently out of favor, and my goal is to identify those rare instances where the market might be mistaken.”
Rolls-Royce, which was the largest holding of the fund as of the end of April, is seen as validation for Solomakhin’s investment strategy. The UK engine manufacturer faced challenges due to disruptions in the supply chain caused by the Covid pandemic. However, a transformation program and changes in management have led to a remarkable recovery of nearly 400% since the end of 2022.
Solomakhin expressed that holding onto the position for many years was a painful experience, but he believes there is still more potential for growth. Bloomberg News has reached out to Rolls-Royce for comment on this matter.
Solomakhin, who joined Fidelity in 2006 as an equity research analyst for Europe and has been managing the global long-short diversified fund since 2012, typically holds a stock for three to five years. The portfolio has delivered a return of 19% in the past year, in line with the benchmark MSCI All-Country World Index’s performance.
One recent example of a struggling company is Concentrix Corp., a US-based chat-bot operator. The company’s stock has dropped by 38% this year due to the increasing adoption of artificial intelligence (AI).
However, Solomakhin, an industry expert, disagrees with the notion that AI chat bots have rendered the services provided by Concentrix obsolete. He believes that the market’s perception is overly pessimistic and that there are nuances to consider.
Concentrix, in response to inquiries, stated that the decline in their share price is an overreaction to the impact of AI. They argue that investors are mistakenly attributing the weaker macro-economic environment to the influence of AI.
Another holding in Solomakhin’s portfolio is Babcock International Group Plc, a UK defense firm. The company’s stock has experienced a significant rebound, surging by over 170% since reaching a low point in January 2021.
Despite the challenges faced by Concentrix, Solomakhin remains optimistic and is patiently awaiting profitable returns from some of his long-term investments.
According to the editor, Ericsson, a Swedish network equipment manufacturer, is considered a “value trap.” Over the past decade, the company’s stock has declined by approximately 20%, while Stockholm’s benchmark index has experienced a rally of over 80%.