Fidelity Asian Dividend

Singapore-based manager Jochen Breuer has a dividend focus, but he does not look for income alone. The fund will pay a decent yield of around 30-40% more than the wider market, but also offer the opportunity for capital and dividend growth. While the portfolio favours high-quality companies, Jochen will not invest in them at any price and this value-aware mindset, coupled with the yield target, gives the fund a value tilt. Jochen considers risk to be the permanent loss of capital, so will do his utmost to avoid large drawdowns.

Our opinion

The Asian market is one of increasing relevance and importance for global equity income investors, and this fund is well placed to capture that trend. Regional-based manager Jochen Breuer generates an above-market yield, but one that can also grow, offering attractive total returns. The fund’s performance comes primarily from stock selection, demonstrating his skills as a manager. We also like the strong focus on corporate governance, which helps reassure that Jochen is able to avoid the risks that present in the region.

Fund manager

Jochen studied Finance & Asset Management at the International School of Management in Dortmund and holds a M.Sc. in Investment Management from Cass Business School, London. He joined Fidelity in 2007, starting as a small-cap industrials analyst in London. He also worked on media companies, before becoming the telecoms, media and technology sector leader and managing an internal TMT fund. He moved to the Asia team based in Hong Kong in 2013, where he covered energy, chemicals and shipping sectors. In 2016, Jochen started running a pilot Asia Pacific equity income fund in collaboration with the London equity income team, before taking over the Asian Dividend fund. He resides in Singapore, with around 50 analysts for support in nearby Hong Kong.

I believe the key to generating consistent returns lies in investing in companies with sustainable business moats that can generate high and stable returns over time. I look for companies with a good track record of capital allocation and management incentivised appropriately.

Jochen BreuerFund manager

Investment process

Jochen looks for companies with high-quality franchises and good balance sheets. He likes them to have strong capital discipline from a well-informed management team to create a business model with good cash generation. He has a wide variety of companies to choose from which enables him to be quite price sensitive. As such, the fund will often have a value tilt.

The fund has a dividend-focused total return strategy which means it will not be the highest yielding fund but should deliver consistent dividends that can grow over time.

Ideas are generated from the Fidelity analyst network, though Jochen also runs some screens on the universe himself to flush out companies with factors he likes such as good balance sheets, high free cash flow, attractive dividend yields and a solid return on capital. Each stock will have to pay some level of dividend.

If the stock meets Jochen’s criteria, he will create a base case, bear case and bull case to assess all potential outcomes, risks and the potential impact of each on the portfolio. These are made over a three to four-year time horizon.

The final portfolio can consist of between 30-50 names, though usually stays between 35-45. The dividend on the fund is smoothed, meaning investors will get three regular dividends followed by a final payment.

ESG

ESG - Integrated  

Jochen’s philosophy is to protect capital, and one way to help do this is to reduce non-financial risks, of which ESG factors are considered part. As mentioned in the process, Jochen has a preference towards those firms with good corporate governance and capital allocation practices, which naturally aligns well with superior ESG outcomes. Analysts within Fidelity’s network will create scores and rankings as part of the fundamental analysis of a company. This work is proprietary to Fidelity, creating its own research and ratings. Previously, this culminated in a single score for each stock, but this process is being enhanced to dissect the scores into one each for environmental, social and governance. As such, whilst governance had been the primary focus for Jochen, the expanded coverage from Fidelity means environmental and social factors are becoming increasingly important in the stock selection process. One final issue considered is who the incremental buyer of stocks will be over the longer term. As such, it is increasingly important to consider ESG factors as part of the investment process as this will help support the share price going forward.

Risk

Positions are sized between 1.5-5%, with cash limited at 5%. The fund will be underweight obvious sectors that don’t pay dividends such as the growing tech companies. When monitoring the geography of his fund, the manager considers the exposure of sales revenue rather than listing. As such, the fund has no benchmark limits, though Jochen likes a diverse split of geographies.

The fund does best in sideways markets due to the stock picking capability. Jochen also often outperforms in falling markets due to the valuation sensitivity and desire for better corporate governance, meaning the discipline of his management teams ensure the companies hold up better in difficult markets.

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