Fidelity Greater China A-Dis-USD |
Morningstar's Take
|22/01/2024by Sam Hui
| Fidelity announced that Fidelity Greater China’s lead portfolio manager and head of Asia Pacific equity research, Victoria Mio, will leave the firm to pursue other opportunities. As a result, current comanagers Ben Li and Theresa Zhou will take over the leadership of this strategy effective 30 September 2023, while Yuanlin Lang will remain as a comanager. In light of Mio’s departure, the firm’s Asia Pacific analyst team will now report to Marty Dropkin, head of equities, Asia Pacific, together with the region’s portfolio management team. Mio and the three comanagers took over this strategy on 31 March 2021. Mio is a seasoned China equity investor who has 24 years of experience. She had successfully led Robeco Chinese Equities for over a decade before joining Fidelity in September 2020, though she has posted a middling track record here over her relatively short tenure. We note that she has relied heavily on the three comanagers to do the heavy lifting in stock selection, and investment decisions were made jointly between Mio and the comanagers. Comanager Li, Zhou, and Lang have between 10 and 14 years of investment experience, though mostly as analysts, and they are still ramping up their portfolio management experience. While the loss of Mio’s guidance is disappointing, we believe the current People rating of Average remain appropriate, which already reflected our reservations about the three comanagers’ investment capability. On the other hand, we think Li and Zhou’s co-lead appointment brings continuity, as they were integral to establishing the strategy’s investment approach, and they have been deeply involved in all investment decisions since day one. To focus on portfolio management, Li and Zhou plans to offload their stock coverage responsibilities in consumers and China A shares, respectively, while Lang will retain her healthcare coverage. They continue to benefit from Fidelity’s sizable Greater China analyst team. The strategy’s bottom-up, quality growth-oriented investment process will remain intact after the lead manager change, and we expect the three managers to continue to adopt a team-based approach in making investment decisions. We therefore maintain the strategy’s Average Process rating. We will speak with the three managers when the transition is completed to get a more comprehensive update. |
| We are still building our conviction in the current co-lead managers and the investment process following some recent changes in the management roster. The strategy continues to merit an Average rating on both the People and Process Pillars. Victoria Mio left the strategy on Sept. 30, 2023, after having served as its lead manager since March 31, 2021. As a result, existing comanagers Ben Li and Theresa Zhou stepped up to become co-lead managers, while Yuanlin Lang stayed as a comanager on the strategy. Mio was a China equity veteran who had over two decades of investment experience and built a successful track record before joining Fidelity in 2020. Li, Lang, and Zhou have between 11 and 14 years of industry experience, mostly as analysts. Mio used to rely heavily on the three comanagers for stock selection, and they made investment decisions jointly. Since Mio's departure, Li and Zhou became the final decision-makers. They debate investment ideas with each other across all sectors and try to reach a consensus. In contrast, Lang's role was reduced to only focus on the healthcare sector, where she retained her research coverage. Recently, Fidelity announced that Lang will leave the firm effective March 18, 2024, and her role will not be replaced. While these developments are unfortunate, the ongoing presence of Li and Zhou, who have both been deeply involved in the creation of the current investment approach and in making all investment decisions since March 2021, brings continuity. Supporting resources are vast at Fidelity, with 24 analysts (excluding Lang) dedicated to Greater China coverage. Li and Zhou continue to adopt the existing bottom-up, growth-oriented investment process. They leverage analysts' best ideas and look for four types of companies with various growth and risk profiles: quality compounders, emerging leaders, cyclical winners, and defensive anchors. They tend to invest 50% to 60% of the portfolio in quality compounders, which can deliver sustainable long-term growth with moderate risk, and allocate 30% to 40% to emerging leaders and cyclical winners, which can deliver higher growth but are also embedded with higher risk. The portfolio has looked consistent with the managers' approach over the past three years, exhibiting a clear quality-growth bias with its valuation metrics such as price/earnings and price/book and quality metrics such as return on equity and return on invested capital sitting above those of the MSCI Golden Dragon Index. The strategy outpaced peers but lagged the index since the co-leads became involved with the strategy. Overall, Li and Zhou's experience as money managers and final decision-makers is still relatively limited. We believe there is room for improvement in their execution, such as with their buy/sell timing of some portfolio holdings, and they need more time to prove themselves. |
Turnovers in the management roster warrant monitoring.To find out how Morningstar rates a fund click here.
| Morningstar Pillars | |
| People | Average |
| Parent | Above Average |
| Process | 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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