Fidelity Asian Values (FAV) gives investors liquid access to the attractive small-cap Asian market (ex-Japan). Its long-term returns have beaten UK markets, Asian benchmarks, listed peers and open-ended fund comparators. This performance is driven by i) superior GDP growth, demographics, cherry-picking from 18,000 potential investments and markets with pricing anomalies, and ii) the value added by Fidelity, with its rigorous investment process, flexible mandate and active management. Risks include geopolitical and economic tensions, volatility and the market’s appetite for small-cap value stocks. FAV trades at a modest discount to NAV.
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- Asia’s attractiveness: In addition to the above, new cross-border agreements could increase trade volumes and cut costs by $90bn and, across the region, governments are introducing business-friendly policies. After a period of underperformance, average Asian value P/Es are two-thirds growth ones.
- Fidelity adds value: Fidelity adds value by using locally-based analysts researching 1,000 companies in detail to identify where market expectations or valuations are wrong. These are mainly under-researched, high-return, well-managed, smaller-cap names. FAV has all the closed-ended-vehicle advantages.
- Valuation: Going into COVID-19, FAV was trading at a 4% discount to NAV and, following a strong share price performance in April 2021, it is back to this level. This rating is above that of most peers, and FAV has delivered superior long-term performance. The primary goal is capital growth, but there is a 2% dividend yield.
- Risks: Geopolitical and economic tensions may affect investments, and also sentiment. If growth/momentum stocks are in favour (as they have been for much of the period since 2016), FAV faces a relative headwind, which it has usually, but not always, overcome. Volatility of returns is likely to be high.
- Investment summary: FAV has delivered superior long-term returns by being in attractive growth markets and adding incremental value using structured, in-depth analysis to identify mis-priced investments. Its “value” investments have actually delivered higher earnings growth than the average Asian “growth” company, as well as being lower-rated and providing a higher return on equity. FAV is actively managed, and divergence from the benchmark performance, often for sustained periods, is to be expected.