Investing in the next wave of financial transactions
Fidelity’s Jennifer Fo Cardillo believes the landscape for major financial transactions is shifting, revealing some unique investment opportunities based on a potential uptick in activity.
- A backlog of major financial transactions – from mergers and acquisitions to commercial real estate deals – has accumulated as businesses awaited clarity about interest rates, tariffs and the U.S. administration’s economic policies, according to Fidelity’s Jennifer Fo Cardillo, highlighting potential prospects for firms strategically linked to this activity.
- “I expect that companies will face mounting pressure to return capital to investors and deploy newly raised funds, which could lead to an increase in financial transactions,” explains Fo Cardillo, who manages Fidelity Advisor® Small Cap Fund. “Furthermore, I expect the administration to be more supportive of mergers and acquisitions, which could breathe new life into the corporate consolidation landscape.”
- In managing the small-cap core strategy, Fo Cardillo favors firms with competitive differentiation, the ability to fund operations with stable cash flow, and a trustworthy management team, while avoiding businesses with poor earnings quality, stretched balance sheets and unreasonable valuations.
- She notes that although deal activity has picked up, it remains below the historical average (as a percentage of gross domestic product), suggesting room for further recovery.
- According to Fo Cardillo, companies such as Stifel Financial, Piper Sandler, Houlihan Lokey and Lazard – all fund holdings as of July 31 – could gain traction amid government deregulation initiatives.
- “Furthermore, elevated interest rates have continued to suppress commercial real estate transaction volumes, contributing to eight consecutive quarters of decline,” she explains. “However, signs of stabilization emerged in the second half of 2024, and we’re now seeing early indicators of renewed growth – suggesting a possible inflection point for the sector.”
- As a play on this theme, Fo Cardillo cites Colliers International Group, a Canadian real estate brokerage firm in the portfolio she believes is well-positioned amid a resurgence in commercial real estate volume.
- “Several of these businesses have diversified their revenue streams, making them better equipped to weather market fluctuation,” she concludes. “This shift not only enhances valuations but also provides a foundation for growth.”
Fidelity Advisor Small Cap Fund (FSCIX)
Seeks long-term growth of capital.
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