Fidelity Asian Values delivers long-term outperformance (LON:FAS)

Fidelity Asian Values plc (LON:FAS) is the topic of conversation when Hardman and Co’s Analyst Mark Thomas caught up with DirectorsTalk for an exclusive interview.

Q1: You called your recent report on Fidelity Asian Values “Get inside the manager’s head”. What can you tell us about it?

A1: On 1 April 2022, FAV’s manager joined Hardman & Co for a wide-ranging Q&A session, which we reviewed in the above report. The session gave investors a detailed insight into Nitin’s investing approach, as well as the current portfolio.

The trust’s key characteristics are buying good businesses (defined as having products that customers want to buy, earning high ROE, with honest and competent people) that are bought at good prices (defined as offering a margin of safety), and these themes ran through the session. These traits mean that ESG is embedded as a good business practice, not a marketing slogan, and regulatory risk should be below-average. Buybacks have also re-commenced.

Q2: One area you asked him about was the key factors driving the great track record, outperforming the benchmark by, on average, 5% a year over the past five years. What did he have to say?

A2: Nitin identified two key factors: first, the investment process and discipline ensure the avoidance of drastic errors by keeping the trust away from bad businesses and bad people, and from severely overpaying for businesses. Avoiding costly mistakes, as well as making the right investments, are, in our opinion, very important factors in achieving outperformance. 

Secondly, he highlighted the quality of the people in the broad investment team at Fidelity, as well as the independent board of directors, which meant that he was able to be confident in expressing convictions.

We note below how the long-term outperformance has not always been smooth and having the confidence to hold a long-term winning approach through short-term challenges, to us, sounds invaluable support for a manager.

Q3: You also asked him how he selected stocks from the near 19,000 companies that fall into his mandate.  How did he respond to that?

A3: Nitin identified three separate buckets from which ideas are typically generated.

First, roughly half come from the broad pool of Fidelity analysts. FAV has a competitive advantage over many global peers, in having a huge team based in multiple local sites (inter alia China, Singapore, Mumbai), in addition to its global resources. They analyse companies across the entire market cap spectrum.

The second source of ideas is a screen, which filters high ROE businesses at cheap prices.

Finally, there are those that the manager termed, rather quaintly, as being “accidents”, but that we would characterise as being market-aware and alert. Examples of these include being aware who made coffee, using one meeting to establish business contacts and recommendations of good suppliers, etc. The depth of Fidelity’s research materially increases the chance of such “accidents” happening.

Q4: You talked about his position in China. What did you learn from that?

A4: Geopolitical tensions are very dominant in the Western press, but, in China, you get very different headlines. So, as the saying goes, you need to be careful about what you read in the papers.

Having invested in China for nearly a decade, Nitin observed that what you see on the ground, in many cases, differs very sharply from what you read in both local and Western papers. One key consideration, though, is understanding how a business contributes to the society in which it operates. If you know that, you can understand and appreciate the regulatory risk. The Chinese government has a problem if you do something that harms society, but, if you are doing the right thing for society and employees, it leaves you be. When it does interfere, it does not do so agreeably – coming in very hard.

Fundamentally, however, the Chinese government is not anti-capitalist per se. Businesses that make a positive contribution to society and “common prosperity”, and ones that are unlikely to threaten the communist party’s hold on power, are much less likely to face regulatory pressure than large tech, and FAV is investing in the former. We concur with this view, as detailed in our on note on FCSS, published on 18 March 2022, The time to “be greedy when others are fearful”?

Q5: So you called your piece “get inside the manager’s head”. What would be your key takeaways?

A5: The key takeaways were that Fidelity Asian Values is not a complicated story. It invests in good businesses – not stocks, but businesses. It backs people in whose competency and honesty it trusts and buys at prices with a margin of safety. It does this again and again, and it doesn’t get carried away and doesn’t go to extremes – it just repeats the same behaviour, again and again.

It sounds quite boring, but by maintaining this discipline, with the Fidelity analyst team generating great investment ideas, and with the through-cycle support of the board, FAV has delivered long-term outperformance. Its approach may not have been in favour when investors were over-excited, with excessive margin money and easy liquidity, and when there was investing/gambling on loss-making business, but, over the long term, it has delivered.

Click to view all articles for the EPIC:
Or click to view the full company profile:
Facebook
X
LinkedIn
Hardman & Co

More articles like this

Fidelity Asian Values

Asian markets rebound as investor sentiment improves

Asian equities gained momentum, taking cues from Wall Street’s positive performance. This came as US Treasuries paused a selloff that had driven 10-year yields up to 4.5%. Traders remain attentive to developments surrounding President-elect Donald Trump’s

Fidelity Asian Values

Asian markets climb amid thin trade and economic concerns

In light trading on Monday, Asian stocks saw notable gains as Japanese markets remained closed for the Culture Day holiday. Despite ongoing tensions in the Middle East and growing caution around the U.S. presidential election and

Fidelity Asian Values

Asian markets rise amid eased Middle East concerns

Asian stocks showed gains on Monday, driven by relief that Israel’s recent conflict with Iran avoided a full escalation. Israel’s weekend strike against Iran, while serious, steered clear of targeting crucial oil and nuclear facilities, lessening

Fidelity Asian Values

Asian markets rise amid economic optimism and regional stability

Asian stock markets experienced an upswing, buoyed by Wall Street’s strong performance. Notable gains were seen in Shanghai, South Korea, and Singapore, reflecting positive investor sentiment. However, this optimism was tempered by concerns over China’s debt

Fidelity Asian Values

Asian stock markets Rally amid robust economic data

Asian stock markets experienced significant gains on Monday, while the US dollar reached a seven-week high against the yen, buoyed by surprisingly strong labour market data in the United States. This unexpected economic strength alleviated concerns

Fidelity Asian Values

Southeast Asian markets outperform

Since the end of June, Southeast Asian markets, including the Philippines, have outperformed the United States. This was driven by growing expectations that the US Federal Reserve would adjust its policy, which caused the dollar to