Fidelity Asia Pacific Opps E-Acc-EUR

Analyst Report
Morningstar's Take
|13/12/2023

by Claire Liang
Fidelity Asia Pacific Opportunities continues to be backed by a talented manager, deep analytical resources, and a well-executed investment process. We reiterate the strategy’s High People rating and Above Average Process rating.

Portfolio manager Anthony Srom brings 26 years of experience and has led this strategy since June 2014. He is an expert investor, consistently showcasing in-depth stock and market insights over the years, and he has delivered commendable long-term track records across his strategies. His edge also comes from his sell discipline and the great attention he pays to overall portfolio risks, which we think are critical for this concentrated and contrarian offering. Srom is backed by Fidelity’s sizable Asia-Pacific ex Japan analyst team of 63. The team has been relatively stable in recent years, with annual analyst departure staying in the low single digits, though it recently lost head of research Victoria Mio, who won’t be replaced. Reassuringly, the team still has two dedicated directors of research to ensure research quality. The analyst team now reports to head of Asia-Pacific equities Martin Dropkin alongside his existing portfolio management team to help streamline communications between the two teams.



The bottom-up investment approach is differentiated and has been well executed over time. It is high-conviction and contrarian-oriented. Company fundamentals, market sentiment, and valuation are the three major tenets that Srom focuses on in assessing prospective holdings, and he prefers quality companies that are oversold but where he sees longer-term opportunities. The resulting portfolio consists of 25-35 names. To manage the risks of this very concentrated portfolio, Srom considers intrastock correlations in determining which stocks go into the portfolio and their position sizes, and he prefers stocks that are lowly correlated to one another. Srom has been more selective with his new holdings in recent years to cope with the elevated macro risks, and he has raised his requirement on a stock’s expected total annual return, especially for Chinese equities, to at least 15%. As a result, the portfolio’s China exposure has been reduced to a neutral positioning from an overweighting over the past year. Srom has been patiently waiting for his investment theses to pan out amid the heightened market volatility, which has caused the portfolio turnover to decrease to less than 40% since 2021 compared with the typical 50%-80%.

This bottom-up approach carries a high alpha potential, though it is highly dependent on Srom’s execution. The portfolio’s concentrated and benchmark-agnostic nature also means performance can substantially deviate from the MSCI All Country Asia Pacific ex Japan Index. Nonetheless, the strategy has been a long-term outperformer over Srom’s tenure, and it remains one of our top picks for Asia Pacific ex Japan equity exposure.
 
Morningstar Medalist Rating™One of our top picks.
To find out how Morningstar rates a fund click here.
Morningstar Pillars
PeopleHigh
ParentAbove Average
ProcessAbove Average
 
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
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