(Bloomberg) — Fidelity International fund manager Dmitry Solomakin has made a name for himself by winning against the winds. His next bet is on a stock that has been hit hard by the rise of artificial intelligence.
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Mr. Solomakin has a long history of investing in companies beset by operational or financial problems. His bets on stocks such as Rolls-Royce Holdings Plc have generated big gains, and his $1.1 billion Global Contrarian Value fund has outperformed 99% of its peers over the past three months, replicating the same year-over-year performance.
More recently, it has begun buying companies it sees as losers in the Nvidia-driven AI boom.
“I call my long-term book 'the book of big flops,'” Solomakin said in an interview. “I look for companies that have completely fallen out of favor. What I try to do is find the tiny few instances where the market might be wrong.”
Rolls-Royce, the fund's largest holding at the end of April, provides particular justification for Solomakin's approach: The British engine maker struggled for years to recover from COVID-19-induced supply chain problems, but a transformation program and management changes have helped it bounce back almost 400% since the end of 2022.
“I've been in this job for many years and it's been a pain,” he said. “It's going well now, but I think it's only going to get better.”
Bloomberg News has reached out to Rolls-Royce for comment.
Solomakin, who joined Fidelity in 2006 and worked as a European equity research analyst, has been running the Global Long-Short Diversified Fund since 2012. He says he holds stocks for three to five years on average. The portfolio has returned 19% over the past year, in line with the rise of the benchmark MSCI All Country World Index.
One recent investment is US-based chatbot company Concentrix, whose shares have fallen 38% this year amid rising adoption of AI.
“Some people say that thanks to AI chatbots, we don't need this kind of service anymore,” Solomakin said. “This is a general opinion, and it has completely different nuances. The market says that this is bankrupt, but I don't agree 100%.”
Concentrix's share price decline reflects an “overreaction” to the impact of AI, the company said in response to questions.
“We believe investors are misattributing the impact of a weakening macroeconomic environment to our earnings as a result of Gen AI,” the spokesperson said.
Other holdings include British defense company Babcock International Group, which has rebounded more than 170% from its January 2021 lows.
Solomakin is still waiting for some of his longest-held investments to produce profits.
He said Swedish network-equipment maker Ericsson is caught in a “value trap”: Its shares have fallen about 20% over the past decade while Stockholm's benchmark stock index has risen more than 80%.
Ericsson declined to comment.
“I've been losing money on this for a long time, but I still have faith and I haven't given up,” he said. “I'm a very stubborn person.”
–With assistance from Jillian Deutsch and Charlotte Ryan.
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