Fidelity China Focus A-Acc-EUR |
by Claire Liang
While we continue to have some reservations on Fidelity China Focus' investment team, we have strengthened our conviction in lead manager Nitin Bajaj executing his value-oriented investment process for this single-country mandate. As such, we upgrade the strategy’s Process rating to Above Average from Average and maintain its Average People rating. Bajaj took the reins of this strategy on Sept. 30, 2022. He is a capable Asian small-cap investor with 21 years in the industry and a decade of experience investing in China via Fidelity Asian Smaller Companies. While China has been a key alpha driver for his regional small-cap strategy, Bajaj’s experience in large-cap Chinese names, which remains the strategy’s main hunting ground, is relatively limited. Encouragingly, Bajaj showed deeper knowledge in large caps during our recent meeting, though it remains to be seen whether he can consistently add value in this space in various market conditions. Bajaj is supported by comanager Alice Li and a sizable team of 17 dedicated offshore China analysts. The team has been relatively stable in recent years. However, given Fidelity’s recent reversal of many experienced analysts’ assistant portfolio manager appointments, which directs them to refocus on their equity research responsibilities, we are keeping an eye on the team’s talent retention and ongoing stability. Bajaj invests with a value mindset and adopts a similar investment process here as his Asian small-cap strategy, which has yielded robust long-term results. While valuation is a central pillar of the investment process, as evidenced by the portfolio’s consistently lower price/earnings and price/book levels compared with the MSCI China Capped 10% Index, Bajaj also pays attention to business and management quality, which we believe can help mitigate the risk of value traps, a common pitfall of value investing. Indeed, the portfolio’s quality metrics, such as return on equity and profit margin, have been close to or slightly above the index. We have also seen Bajaj added more beaten-down domestic Chinese names that he considered higher quality to the portfolio over the past year at the expense of non-Chinese tech holdings, which is consistent with his investment style. Bajaj’s increasing familiarity with large-cap Chinese names, coupled with his proven investment ability in the smaller-cap space, support our conviction in him better executing the process to generate alpha across the market-cap spectrum. The strategy has delivered promising returns over Bajaj’s short tenure, partly thanks to a prominent value tailwind. Between Oct. 1, 2022, and March 31, 2024, the Y-Acc-USD share class gained 3.83% per year, outpacing the Morningstar China Target Market Exposure Index by 414 basis points and ranking in the second percentile among peers. |
Morningstar Pillars | |
People | Average |
Parent | Above Average |
Process | Above Average |
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