How we build a defensive buffer and three new buys in 2025

Tristan Purcell, co-fund manager of the Fidelity Global Dividend fund, explains how he aims to strike a balance between delivering both capital growth and income growth.

Speaking to interactive investor’s Kyle Caldwell, Purcell discusses the fund’s dividend yield, which is lower than some of its peers, at around 2.5%.

Purcell explains that the defensive nature of the fund is one of its key attractions, pointing out that in every period where the market’s lost more than 10%, the fund has outperformed. He explains how he builds a defensive buffer, highlighting key sectors and naming examples of resilient businesses. He also discusses portfolio activity in 2025, and three new purchases.

Fidelity Global Dividend is one of interactive investor’s Super 60 investment ideas.

• Invest with ii: Buy Global Funds | Top Investment Funds | Open a Trading Account

Kyle Caldwell, funds and investment education editor at interactive investor: Hello, and welcome to our latest Insider Interview.. Today in the studio, I have with me Tristan Purcell, co-fund manager of Fidelity Global Dividend fund. Tristan, thanks for your time today.

Tristan Purcell, co-fund manager of Fidelity Global Dividend: Thank you for having me.

Kyle Caldwell: So, Tristan let’s start off with how the fund invests. You aim to strike a balance between capital growth and income growth, so how do you achieve that?

Tristan Purcell: So, we invest for a dividend-based total return. That’s a bit of a mouthful, but what we mean by that is we’re looking for both the dividend and the capital growth to be meaningful parts of the return profile.

We look at, obviously, lots of valuation metrics, but if I try and simplify it down to one heuristic, if you’re trying to build a 10% total return, some proportion of that will come from the free cash flow yield or the dividend yield, and then some portion from the growth.

So, if we’re looking at a company that has a 5% free cash flow yield, we’d look for 5% growth, 7% free cash flow yield, you look for 3% growth, that type of profile.

Kyle Caldwell: The fund has a yield of around 2.5%. How do you convince income-seeking investors to back your strategy over funds that are offering higher yields?

Tristan Purcell: All else equal, we’d obviously love to have high yields, but the trouble with that is the ‘all else equal’ part of the statement. Typically, a high yield means it’s a signal of distress.

So, companies achieve that high yield by paying out a large proportion of their free cash flow, not leaving enough left over to reinvest in the business, sustain that dividend in future, and grow that dividend.

A classic example of this is the mining sector 10 years ago, where you had high single-digit yields only for them to get cut in half.

Kyle Caldwell: I’ve seen the fund described as ‘defensively positioned‘. Is that a fair assessment? And if so, how did the fund fare during the periods of volatility earlier this year?

Tristan Purcell: Yes, definitely a fair assessment. I think one of the key selling points or key attributes that our investors like is that defensiveness.

In a series of compounded returns, if you fall 50%, you don’t just have to go back up 50% to get to break even, you have to double to get back to break even. So, that sort of asymmetric return profile is, in practice, really hard to achieve. That’s a classic first rule of never lose money.

In 2025, around ‘Liberation Day‘, we lost around 9% from peak to trough, whereas the broader market lost 16%, and that’s similar to the rest of the fund’s history.

So, in every period where the market’s lost more than 10%, we’ve outperformed. But I think something that’s often overlooked, and is just as important, is the time it takes to get from that trough back up to your peak again.

So, around Liberation Day this year, it took us nine days to get from that minus 9% back to break even, whereas for the broader market, it took 59 days to recover that 16% drawdown.

• Eight supersized funds that aren’t victims of their own success
• Seven standout funds beating rallying markets

Kyle Caldwell: Let’s now move on to some stock examples within the fund. Could you first explain the types of sectors and types of businesses the fund invests in?

Tristan Purcell: If you pick up the factsheet for our fund, you’ll obviously see that the two largest sector weights we have are in financials and industrials, which are also cyclical sectors in contrast with the defensive characteristics I’ve just described.

But you really have to drill down a bit deeper than that. We’re very much picking individual businesses that we think are resilient. So, I take the financial sector as an example. Within financials, you have banks, insurance companies, you have diversified financials. Banks are also very economically sensitive, quite cyclical, and we don’t own any.

Within diversified financials, you have things like financial exchanges, where as you have periods of volatility, people trade more, and their earnings are actually quite resilient, so we own a substantial portion of them.

And then within insurance, again, you’ve got to go a layer deeper. So, you have life insurers and non-life insurers. Life insurers, like banks, have quite highly leveraged balance sheets, and are quite cyclical, and we don't own any.

Non-life insurers, we own quite a lot of, and those are things like car insurers. So, Admiral Group (LSE:ADM) in the UK, and Progressive Corp (NYSE:PGR) in the US, whose earnings are dependent on whether somebody’s crashed their car that month or not. Not something that’s economically sensitive.

And then we own reinsurers. So, the likes of Munich Re, Munchener Ruckversicherungs-Gesellschaft AG (XETRA:MUV2). Their earnings are dependant on whether there’s been a hurricane in Florida or an earthquake in California. Again, it’s not economically sensitive.

Kyle Caldwell: How often do you make changes to the fund? And could you talk us through some recent portfolio activity?

Tristan Purcell: Turnover’s typically around 20%. That equates to a five-year average holding period. Some companies we’ve owned since launch 13 years ago. Some come in and out much quicker to make that average of five years.

I’d say that turnover typically rises when there’s more volatility, more opportunities present themselves, things are changing. And turnover is typically lower when things are more stable.

There’s always between 40 and 50 companies in the portfolio. We have around 10 names going in or out in a given year, and this year, we’re at around seven new holdings. Just to give you a flavour of those, there’s no one theme or sector behind all of them. There’s nothing common. They’re all selected on their individual merits.

At the defensive end, we’ve bought Exelon Corp (NASDAQ:EXC), which is a regulated US utility. Among the more cyclical companies, one might be Expeditors International of Washington Inc (NYSE:EXPD), which is freight forwarding business, obviously in the eye of the storm with tariffs.

And then at the growth-ier end of the spectrum, something like Amadeus IT Group SA (XMAD:AMS), which is an IT software business in the travel industry.

• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis
• China’s flying: should you go all in or invest across emerging markets?

Kyle Caldwell: You mentioned earlier that you avoid reaching for yield. So, how do you look under the bonnet of a dividend-paying company? How do you assess the sustainability of a dividend?

Tristan Purcell: We’re obviously trying to buy companies that generate lots of free cash flow. So, you both pay the dividend today and sustain that dividend over time.

We look at similar metrics to lots of other people, things like return on capital, like margins, the level of debt compared to the level of profitability. I think it’s something that perhaps we spend a little bit more time on is the capital allocation of companies and the management teams.

So, obviously with that free cash flow they can pay a dividend to us but they could also do buybacks, they could repay debt, they can go out and acquire other businesses, particularly when they go and acquire others businesses, we like to see a successful track record in that.

But I think it’s the qualitative side that really is the most time-intensive part of it. So, we’re trying to understand the industry dynamics, trying to understand what the competition might do over the next 10 years. If the company is going to gain share, does that make it more resilient? Or are they just going to take higher margins? Is there going to be some sort of technological shift or a regulatory change that might disrupt the business model?

I guess they’re typically things that Warren Buffett obviously described as a moat. Two companies off the top of my head that I could give examples of would be Novartis AG Registered Shares (SIX:NOVN), a Swiss pharmaceutical company, and Munich Re, the re-insurer I mentioned earlier.

Both have been in the portfolio a long time. Since the fund launched, both have outperformed the market, Munich Re by over 100% now, and both have grown the dividend every year for at least 20 years.

So, it just goes to show that you can make very healthy returns in businesses that a lot of people consider very steady or perhaps even boring.

Kyle Caldwell: And due to your approach, are there any types of companies or sectors that are off limits that you wouldn't invest in?

Tristan Purcell: There’s nothing I would say is completely off limits. If I think of the types of things that we typically don’t tend to own are those economically sensitive businesses, companies where the price of the product they sell is not really in their control.

So, typically commodity businesses, mining, energy, and so on. But there’s always a fair price for every business. It’s just whether the market’s perception of that fair price is higher than ours or not, that’s often the determining factor.

Kyle Caldwell: Tristan, thanks for your time.

Tristan Purcell: Thank you for having me.

Kyle Caldwell: So, that’s it for our latest Insider Interview. I hope you’ve enjoyed it. You can let us know what you think, you can comment. And for more videos in the series, do hit the subscribe button and the like button. Hopefully I’ll see you again next time.