Performance, prospects and risks analysed for Fidelity Asia investment trust (LON:FAS)

Fidelity Asian Values (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 ‘FAV: questions for the 2022 AGM on 23 November’. What can you tell us about it?

A1: In this note, we asked the questions we would ask the FAV board at the forthcoming AGM, on 23 November 2022. To offer a perspective, we also gave the answers that we would give if we were asked the same questions.

We believe they fall into three key areas, and we asked i) why has the trust outperformed over the long term, ii) what are the short-term prospects, especially bearing in mind the market’s appetite for small-cap, value companies in Asia, the trust’s exposure to Chinese and financial businesses, and sentiment risks, and iii) how the trust is managed in terms of its discount/buyback, the large dividend increase, and its conservative approach to gearing.

Q2: So, taking the first question first, what drives their long-term outperformance?

A2: There has been outperformance against both UK and local benchmarks, and it really has two elements. First, it is because Asia is an attractive market to be in, and, secondly, because of the value added by the trust and the manager.

We explored the macro appeal of Asia in great detail in a recent note, Asia: more appealing than ever, published on 5 July 2022, and the region’s superior economic growth prospects were reconfirmed in the October IMF World Economic Outlook. This is combined with regulatory, socio-demographic and valuation support. Fidelity Asia leverages regional opportunities with stock selection – all about using detailed research to pick good companies at fair prices, and, when we wrote the report, the trust’s companies’ RoE was 35% above the market, but its P/E was 25% lower.

Q3: Your second theme, the short-term prospects, what can you tell us about them?

A3: Half of NAV is in companies with market caps of under £1bn – so market appetite for small caps can be important. This was a headwind for much of 2016-21, as market appetite was for large-cap, growth companies – but Fidelity Asia Values still outperformed.

One short-term theme we have identified is that, more recently, appetite has turned in FAV’s favour, and this could now be a following wind. The manager sees it as the start of a trend, given the relative valuation, while we see significant opportunities in that space.

A second theme is that, while Chinese growth may be slower than in the past, it is still expected by the IMF to be ca.4x that of advanced economies in 2023, and that’s before any further stimulus packages. The manager comments that, even in the property sector, detailed analysis can identify mis-priced opportunities. The volatility, both up and down, around regulation and state intervention, has been very evident in recent weeks.

A third theme we look at is some sector exposures; we note, in particular, that three of the biggest holdings were banks, and financials were the biggest sector overweight in uncertain times. It is worth remembering that Fidelity Asia is all about stock selection, not sector allocation – so sector exposures drop out from stock-picking. Financial investments have strong balance sheets, structural growth opportunities and good managements, and the key ones are in India, where GDP growth is expected to be more than 6% in both 2022 and 2023.

Q4: And the management of the trust?

A4: We noted the active returns to shareholders with a buyback programme that has seen  nearly 2% of shares bought back in the past 15 months. The dividend was increased 59% in 2022, reflecting a sharp increase in investment income, and the current yield on the portfolio should generate a similar level of investment income as last year. Gearing has remained modest through the life of the current manager.

Q5: What does about the risks?

Sentiment risk is always an issue, and the manager highlights the “unknown unknowns”.

Fidelity Asian Values’ performance is driven by stock selection, and that should never be overlooked. It 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, they have delivered long-term outperformance. What we have done in this note is highlight that this approach is being undertaken in very appealing markets that give favourable tailwinds, a potential double whammy, if you like.

Click to view all articles for the EPIC:
Or click to view the full company profile:
Share on facebook
Share on twitter
Share on linkedin
Hardman & Co

More articles like this

Fidelity International

Asian stocks rise

Most Asian stock markets rose on Wednesday, although sentiment remained fragile amid uncertainty over China’s COVID policies and an upcoming speech by Federal Reserve Chairman Jerome Powell. Still, most regional stocks were set for strong gains in November

Fidelity International

China further encourages foreign investment in green sectors

On 28 October 2022, the National Development and Reform Commission and the Ministry of Commerce of China published the Catalogue of Encouraged Industries for Foreign Investment (2022 Version), which will come into force and replace the currently effective 2020

Fidelity International

Asian markets rise on rate hopes

Asian markets rose Wednesday (Nov 23) but traders flitted between hopes for a halt in sharp US interest rate hikes and concern that a surge in China’s Covid cases will see officials impose more painful lockdowns. Wall Street

Fidelity International

Asian markets mostly higher

Asian stock markets are trading mostly higher on Friday, despite the broadly negative cues from Wall Street overnight, as traders remained cautious amid the mixed cues about the outlook for global interest rates after the recent hawkish comments

Fidelity International

Fidelity Asian Values things to ask at AGM on 23 November (VIDEO)

Fidelity Asian Values (LON:FAS) is the topic of conversation when Mark Thomas, Analyst at Hardman & Co joins DirectorsTalk Interviews. Mark talks us through his report entitled ‘questions for the 2022 AGM on 23 November’, explains what drives FAV’s

Fidelity International

Asian stocks rise on China reopening hopes

Asian shares rose on Tuesday as U.S. stocks increased overnight before midterm elections and investors clung on to hopes that China would eventually relax its strict pandemic curbs even after the government reaffirmed its commitment to the zero-COVID

Fidelity International

Asian markets higher

Asian stock markets mostly rose Monday ahead of what is expected to be a Federal Reserve decision this week to raise interest rates again amid investor hopes the U.S. central bank will scale back plans for more increases.

Fidelity International

Asian markets up

On Tuesday, equities mostly rose and the sterling held on to its gains, after the UK government scrapped a controversial debt-funded mini-budget that had roiled markets, while traders were also cheered by a broadly positive start to the

Fidelity International

Asian stocks follow Wall St. higher

European stocks tumbled Thursday and Asian markets were mixed after British Prime Minister Liz Truss defended a tax-cut plan that rattled investors. London’s market benchmark plunged 2.3% and Frankfurt lost 1.9% in early trading. Shanghai and Hong Kong

Fidelity International

Asian markets mostly higher

Asian stock markets are trading mostly higher on Tuesday, following the broadly positive cues from global markets overnight, as traders remain cautious while they await the release of the U.S. inflation data later in the day for more

Fidelity International

Traders find haven from global stock gloom in Southeast Asia

As global equities struggle after the Federal Reserve’s latest hawkish rhetoric, Southeast Asia’s growth outlook is making the region an investor favorite. Man Group Plc, BNP Paribas SA and Credit Suisse Group AG are among those touting the

Fidelity International

Asian markets mostly higher

Asian stock markets are trading mostly higher on Tuesday, despite the broadly negative cues from global markets overnight, as stocks in the region rebounded after the recent sell-off with traders picking up some stocks at a bargain, even

Fidelity International

Asian markets follow Wall Street higher

Asian stock markets are trading mostly higher on Friday, following the broadly positive cues from Wall Street overnight, as traders remain cautious in making large moves as they brace for the US Fed Chair Jerome Powell’s speech at

Fidelity International

Asia markets mostly rise

Asian markets mostly rose on Monday as investors took heart from signs of cooling US inflation, but Hong Kong and Shanghai fell as data showed China’s economy was struggling with its Covid-19 restrictions. The markets have been concerned

Fidelity International

Asian markets mostly up

Asian equities mostly rose Tuesday but investors moved cautiously ahead of US inflation data later in the week, after a jobs report suggested the Federal Reserve would likely need to continue its sharp interest rate hikes to tame

Fidelity International

Asian stocks higher as US-China tensions rise

Asian stock markets rose Wednesday as traders watched for signs trade might be disrupted by U.S.-Chinese tensions over an American lawmaker’s visit to Taiwan. Shanghai, Hong Kong, Tokyo and Seoul advanced after Beijing announced a ban on imports

No more posts to show