Fidelity Em Mkts E-Acc-EUR |
by Lena Tsymbaluk
The Fidelity Emerging Markets strategy has strong features, including an experienced portfolio manager, substantial resources, and an established approach highlighting the firm's best emerging-markets ideas. Nick Price has run this strategy since July 2009 and has 17 years of emerging-markets experience. Price has been supported by comanager Amit Goel since 2019, although Price remains the lead decision-maker. In addition, four regional managers provide their best stock ideas in their own regions of coverage (Asia, EMEA, and Latin America). A team of 46 emerging-markets research analysts feed ideas to the regional managers and Price himself. The approach is meant to provide exposure to Fidelity’s best global emerging-markets equity ideas. Price and the team primarily look for quality firms that exhibit strong and sustainable returns on equity, good balance sheets, shareholder-friendly management teams, and reasonable valuations. Concurrent with the process, the portfolio’s ROE has trended above the MSCI Emerging Markets Index’s throughout time, while its leverage ratios have trended below the index’s. Given the focus on quality, the strategy should hold up better than the average peer during down markets. Indeed, the strategy’s downside-capture ratio has been superior compared with the index and peers. The three- and five-year records have been negatively affected by significant 2022 underperformance, when the strategy was more than 10 percentage points behind the index and peers. This level of underperformance was largely driven by overweight exposure to Russia, which stood at 7.6% as of 31 Jan 2022 (versus 2.8% for the MSCI Emerging Markets Index), with Sberbank, TCS Group, Gazprom, Novolipetsk Steel, and Phosagro written down to zero. In addition, Kazakhstan's Kaspi also fell sharply as investors wanted to get out of Russia/CIS. This has been further exacerbated by a rotation into value, where the fund’s large underweighting in energy detracted. In addition, the fund’s underweightings in Brazil and Saudi Arabia also hurt performance as a shift to other commodity producers took hold. Moreover, the economic slowdown drove a derating of technology stocks, such as Media Tek, SK Hynix, and Samsung Electronics. It is pleasing to see that the strategy’s performance has picked up more recently. Indeed, in 2023 (through 30 June), the fund is ahead of its index and peers. The long-standing overweighting and stock selection in technology (TSMC, SK Hynix, Samsung Electronics), as well as stock selection in materials (Southern Copper) and industrials (Grupo Aeroportuario del Pacifico), contributed positively. Overall, its conservative and balanced approach with a focus on quality should help the strategy to outperform over the cycle. |
Morningstar Pillars | |
People | Above Average |
Parent | Above Average |
Process | High |
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