Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Fidelity Asian Values. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
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Overview

Fidelity Asian Values (LON:FAS) is a diverse portfolio of quality companies, predominantly from the smaller end of the market cap spectrum, selected by manager Nitin Bajaj with a strong focus on valuations. Nitin is highly experienced with this investment style which, when combined with the extensive on-the-ground analyst team, could provide a strong informational edge for an under researched part of the market (see Management).

Nitin believes that smaller companies offer superior earnings growth over the long term, which he aims to capture through his value-tilted approach. FAS has outperformed its benchmark over five years after a very strong past year, which has benefitted Nitin’s value style. Whilst this has been a positive tailwind, Nitin is expecting an alpha driven rally to come next, especially in the Chinese equities market. This means that stock selection is key and if the right stocks are owned, it could be beneficial for Performance going forward. He believes that small-cap value stocks remain significantly undervalued.

Nitin has found very strong value opportunities in China and, therefore, the trust has a large overweight position (see Portfolio). He believes that the Chinese economy is set to grow faster than developed markets next year, in part because of the lifting of the zero-Covid policy, and this should provide a boost to Asian markets. Nitin has increased the net market exposure of the trust to a near five-year high to capitalise on this (see Gearing), given the current risk/reward he sees in various opportunities.

The trust is trading at a Discount in line with its five-year average. However, FAS consistently traded at a premium at the beginning of this period, with two periods when the discount was exceptionally wide in 2020 and 2022, thus affecting the average. The discount is notably narrower than the sector average.

Analyst's View

We believe that FAS offers investors highly differentiated exposure to the Asian region. Smaller companies are likely to have different drivers to the larger companies in the region, including direct exposure to the domestic growth stories across the region. The industry-leading resources of Fidelity further support the identification of the best ideas from the vast universe, as well as helping to build a strong understanding of the companies through interactions with management. When combined with Nitin’s strong valuation focus, we believe this makes for a unique offering, likely to exhibit a very distinctive portfolio against both peers and the wider index (see Portfolio).

Nitin can also take short positions and can invest up to 20% in larger companies, which offers strong diversification benefits, as well as helping the trust to stand out against the peer group and index. All these factors have contributed to strong long-term Performance. This has been supported by an excellent period recently, but we believe the ability to outperform in a variety of market backdrops has demonstrated the stock selection prowess of the manager.

Despite this strong performance, Nitin has evidenced a portfolio that is cheaper than the market average, and significantly cheaper than equivalent growth companies. Yet it still offers quality characteristics in line with the market. We believe that if the market should continue to focus on fundamentals, Nitin is well-placed to capture the alpha opportunities with his approach.

Bull

  • Unique approach leading to highly differentiated portfolio
  • Recent market rotation has been very beneficial to performance
  • Portfolio is still at a discount to growth companies, despite quality metrics being in line with the market

Bear

  • Value style could lead to underperformance in momentum driven markets
  • Increase in gearing, which can amplify losses as well as gains
  • Overweight to China could impact performance if reopening of trade fails to materialise
Continue to Portfolio

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