Ramona Persaud strives for the trifecta of excess returns, downside protection and a shield from volatility

Ramona Persaud graduated with an environmental engineering degree in New York but wound up as a money manager by quirk of fate. It started with a part-time job answering phones at Morgan Stanley. She ended up teaching herself code to help digitize the firm’s trade-clearing operations and later moved to Goldman Sachs’s derivatives business. Then she earned a Wharton MBA. Her engineering studies have still come in handy in her 23 years with Fidelity, helping her think through complex problems. She now oversees $59 billion in assets, including the Fidelity U.S. Dividend Fund for Canadian investors. The fund has outpaced the S&P 500 Dividend Aristocrats Total Return Index in Canadian dollars since she took over in 2017. We asked why Persaud owns some Canadian stocks in that fund and likes Taiwan Semiconductor Manufacturing.

Can you describe your investment strategy?

I try to combine high-quality stocks with lower valuation and also provide income. Valuation drives excess return; quality gives downside protection; and income provides the dividend and protects against volatility. Some stocks don’t have all three elements but are still compelling. The market is now more sensitive to headlines from tariffs or war, so I diversify more. I own pairs of similar companies, such as retailers Walmart and Target, to get excess returns because they can perform differently. I own turnaround plays, such as Starbucks and Rolls Royce Holdings, because they can do things internally to improve their businesses. I own cheap stocks not correlated to the AI trade, such as healthcare company Gilead Sciences and British American Tobacco. I buy AI laggards, too.

How do you view so-called U.S. “dividend aristocrat” stocks, which must have at least 25 years in a row of rising payouts?

I love this universe, but I don’t always love the valuation. Those stocks tend to be expensive. My fund is cheaper and higher quality based on return on equity. Probably 20% to 25% of my fund is in the dividend aristocrats. They include J.M. Smucker, ExxonMobil Holdings and AbbVie.

You also own Canadian dividend stocks like Alimentation Couche-Tard, Metro and Canadian Natural Resources. Why do you bother when the U.S. is a fertile hunting ground?

Quebec has some exceptional businesses. We own convenience store and fuel retailer Couche-Tard because it’s a strong capital allocator and innovator. The market gets fixated on the fuel business in this era of electric vehicles and discounts its valuation. But Couche-Tard buys similar businesses globally and gets efficiencies. We like grocer Metro even though it has some operational issues. It has less competition than similar U.S. grocers. In the U.S., Albertsons competes against Walmart, which is formidable. We also own Canadian Natural Resources because its oil sands are long-life assets and generate good free cash flow. There is no U.S. equivalent.

Where have you found opportunities?

In the U.S., the valuation opportunity has been in large-cap pharmaceuticals and consumer discretionary stocks. The market has been so enamoured with AI that it has forgotten the more stable, predictable, high-return and boring parts of the market. I’ve added to my holdings in pharma company AbbVie and retailer Target, which is working to resolve its execution problems.

Chipmaker Taiwan Semiconductor, which trades as an American depositary receipt, is a top holding. Is China’s threat to invade Taiwan not a worry?

What I love about Taiwan Semiconductor is that it’s a near-monopoly in contract chipmaking. It took the lead from Intel by building a better chip and now has an incredible moat around its business. I prefer to own the company when it has a reasonable valuation. There could be doubt about the stock when it’s had a difficult quarter, when the market is worried about demand or it faces threats from China. I deal with the latter by keeping the position size smaller than I would otherwise. If something happens, my anti-correlation stocks should do well. They are healthcare and consumer staples names, which are defensive parts of the fund.