Fidelity Asian Smaller Coms A-Acc-EUR

Analyst Report
Morningstar's Take

by Claire Liang
Fidelity Asian Smaller Companies continues to benefit from an experienced portfolio manager backed by vast analytical resources, as well as a disciplined and time-tested approach. Most share classes of the Luxembourg-domiciled vehicle retain their Morningstar Analyst Ratings of Silver, whereas the most expensive share classes land at Bronze.

Lead manager Nitin Bajaj brings 20 years of investment experience and has led the strategy via this Luxembourg-domiciled vehicle since September 2013. We think he is a seasoned and capable Asian small-cap investor who has demonstrated a great commitment to his value discipline throughout market environments. In addition to this strategy, Bajaj took the reins of Fidelity China Focus in September 2022, a large-cap-oriented China equity strategy that shares limited synergy with this regional small-cap portfolio. While Bajaj’s added workload bears watching, we take comfort that he continued to show a firm grasp of the portfolio holdings during our February 2023 meeting. His access to Fidelity’s deep investment resources across the Asian region, including the strategy’s assistant portfolio manager Ajinkya Dhavale and four other dedicated small-cap analysts, also help mitigate our concerns. Small caps are under-researched in Asia, and the firm’s sizeable and locally based resources allow Bajaj to conduct deep analysis and find sufficient ideas in this arena; we consider this a key strength that few peers can match.

Bajaj employs a value-oriented approach that is well-defined and has been consistently executed with proven efficacy in the Asian small-cap space. He 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. This, coupled with his emphasis on a company’s business model and financial strength, have partly contributed to the strategy’s lower volatility and drawdowns relative to the MSCI Asia ex Japan Small Cap Index and average peers over the years. That said, Bajaj pays no attention to any benchmark in portfolio construction, and the portfolio often exhibits notable sector and country deviations from the index. Therefore, investors should be mindful of lumpy relative returns.

Capacity management is something we monitor closely, given the strategy’s focus on smaller-cap companies 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 discernible changes to the portfolio’s liquidity profile, and only two out of the 27 common holdings between the two portfolios had a total company ownership of more than 5% as of December 2022. Bajaj and Fidelity’s track record of being sensible with the strategy’s capacity also provides some comfort.
Morningstar Medalist Rating™An appealing Asian small-cap strategy.
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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