Fidelity Asian Smaller Companies
This is a genuine stock picking fund with an emphasis on buying good business at good prices. The fund has a contrarian ‘value’ bias. Risk is considered in an absolute term rather than relative to any benchmark or peer group. This is a fund which relies very heavily on the fund managers skill. The fund has a very high active share.
Our Opinion
Fund Managers
Fund Managers
Nitin Bajaj joined Fidelity in 2003 as a research analyst in London. After achieving notable success and high ratings in research, he transitioned to the role of Assistant Portfolio Manager in 2007, focusing on the Fidelity Global Special Situations Fund in the UK. In 2009, Nitin moved to Mumbai to manage Fidelity's domestic Indian equity funds. He later relocated to Singapore in 2012 to manage the Fidelity Asian Smaller Companies Fund (SICAV). Since April 2015, Nitin has also managed the Fidelity Asian Values PLC, applying the same contrarian value philosophy and approach.
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Fund Performance
Risk
Investment process
The fund philosophy stems from a belief that small cap value outperforms over time. This has proven to be the case in the Asia ex Japan region as it has in most of the world. Value typically beats growth over the long term as growth stocks typically miss their high expectations. Investors also demand a premium for holding smaller, less liquid and more volatile small-caps. In addition smaller companies have greater scope to grow allowing them to outperform over the long-term.
The fund also believes in genuine active management rather than hugging a benchmark. As Sir John Templeton said, ‘It’s impossible to produce superior performance unless you do something different from the majority’.
Therefore, the fund starts with a contrarian value philosophy. However, the team has a flexible rather than dogmatic approach and believes that, ‘there is no right or wrong’, when it comes to investing. What matters is finding what works for you.
The investment process is simple common sense. Nitin and Ajinkya aim to buy good businesses run by good management teams at good prices and then hold them over the long term. The emphasis is on buying a ‘business’ rather than a ‘stock’. The universe of opportunity is very large with around 13,000 listed small cap stocks in Asia. Ideas come from screens, analysts, company meetings, external brokers and observation. They have a series of simple checklists which allow them to quickly target the sort of businesses which might be interesting.
Firstly, they have a list of what they avoid. The characteristics for avoiding companies includes:
- Businesses which can’t be easily understood
- High valuations relative to history
- High debt
- High margins versus history
- High percentage of contracted revenues from a single theme
Then a further checklist for stocks they are considering:
- Do I understand the business?
- Do I like the industry structure?
- Is it run by people I trust?
- Is it available at a reasonable valuation?
The fund is well diversified with well over 100 holdings across many different countries in Asia. This avoids over concentration and makes managing liquidity easier.
Risk
The fund invests in smaller companies in Asia, which means returns can be more volatile. The fund is quite stylistic and its contrarian value nature and high active share means performance often deviates substantially from the benchmark. Volatility is high and performance can be quite lumpy. Nevertheless long term performance has been excellent.
ESG
ESG risk are evaluated and include; governance, management incentives, alignment to minority shareholders, cyber risks, labour practices and health & safety. Sustainability risks are integrated into investment decisions. However, the fund does not promote environmental or social characteristics or have sustainable investments within its objective.