Fidelity Asian Smaller Coms A-Acc-EUR

Analyst Report
Morningstar's Take
|27/03/2024

by Claire Liang
A capable lead portfolio manager, who is backed by deep analytical resources, and a disciplined investment process continue to drive our confidence in this Asian small-cap strategy. We maintain its Above Average People and Process ratings.

Lead manager Nitin Bajaj brings 21 years of investment experience and has led this strategy via its Luxembourg-domiciled vehicle since September 2013. He is a seasoned Asian small-cap investor who possesses deep knowledge in this space and has shown a great commitment to his value discipline throughout different market environments. His increased workload from taking over Fidelity China Focus in late 2022 remains a watchpoint. Reassuringly, he has continued to show great familiarity with the portfolio's holdings during our February 2024 meeting, and stock selection has remained strong over the past year.

Assistant portfolio manager Ajinkya Dhavale was appointed as comanager here on Feb. 29, 2024. He continues to assist Bajaj in identifying stock ideas, whereas Bajaj remains the final decision-maker. We think Dhavale’s naming here is sensible, given that he has closely worked with Bajaj over the years. The supporting 55-member Asia-Pacific ex Japan team is well-resourced, with five small-cap analysts, and it 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.

The bottom-up investment process has a clear value bias. Bajaj focuses on finding well-run companies managed by competent management teams and pays particular attention to their valuation. He typically requires a significant margin of safety in the share price when initiating his positions and tends to steer away from crowded areas, with Taiwan and India small caps being recent examples. The strategy’s asset size grew to USD 1.8 billion as of December 2023 from USD 1.5 billion a year ago, driven by both the up market and some inflows. We remain watchful of the strategy’s capacity, given its focus on smaller caps and the fact that Bajaj has been including some of his best ideas here into the much larger Fidelity China Focus portfolio. That said, we have not observed any discernible changes to the portfolio characteristics, and its liquidity profile has remained stable over the past year.

The strategy has delivered robust results over Bajaj’s tenure, coupled with lower volatility compared with the MSCI All Country Asia ex Japan Small Cap Index and average peer. That said, Bajaj’s benchmark-agnostic approach often results in notable sector and country deviations, and investors should be mindful of lumpy returns.
 
Morningstar Medalist Rating™An attractive value strategy in experienced hands.
To find out how Morningstar rates a fund click here.
Morningstar Pillars
PeopleAbove Average
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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