Morningstar Fund Awards 2010
Winner of Asia ex-Japan Equity
Fidelity Funds - Asian Special Situations Fund
Another frequent award-winning fund house for Morningstar Fund Awards – Fidelity International – won three awards in the year 2010. As our analyst commented, Fidelity is well known for its dedication to spend liberally in an effort to be the best in the industry. It’s no surprise that investors always see Fidelity’s funds with good ratings, for both Morningstar rating and Qualitative rating. Fidelity Funds - Asian Special Situation Fund, which is the winner of Asia ex-Japan equity fund for 2010 Morningstar Fund Awards in Hong Kong, is one of Fidelity’s flagship products.
Performance
Fidelity Funds - Asian Special Situations Fund gained 20.57% in 2010. Although it is not a best showing in its category, its longer-term performance is impressive. As at April-end 2011, the fund’s, 3-, 5- and 10-year annualized returns are 6.79%, 12.88% and 14.70% respectively, winning most of its peers. Manager Joseph Tse, who works in Hong Kong, has just passed his 10th anniversary of managing this fund. With over 20 years of industry experience, Tse is one of the longest-tenured members in the Asia-based investment team. In terms of research support, Tse can access to the regional team with 18 portfolio managers and over 30 research analysts. This team is one of the best and deepest we have seen.
Key to Success
Fidelity Funds - Asian Special Situations Fund is a stock-picking fund. Tse agrees that this strategy is highly labour intensive and time consuming for him to build conviction and generate alpha, but this is exactly how this fund distinguishes itself from its rivals. Bottom-up stock selection is a cornerstone of the fund’s process and a framework for constructing a long term focused portfolio, but this is not the only way for capturing return. “On top of bottom-up stock picking, I invest in investment themes that I think are durable. At times, I may buy baskets of stocks which play into certain themes.” Tse commented.
“Small and mid-cap outperformed large-cap” is a statement we usually use to conclude the stock market in 2010, and it is the case for Fidelity Funds - Asian Special Situations Fund too. Besides, overweighting China and Hong Kong names was another key for the fruitful 2010, as both markets delivered a relatively strong performance compared with their regional peers. Sector-wise, the portfolio’s significant overweight positions in the consumer discretionary and information technology sectors underpinned its outperformance. IPO was a tricky area last year but Tse made the correct bets in some not “hot” IPO.
Focuses
Going forward, Tse believed that global economy will continue to improve. Economic development of the Asian economies will transform from export-oriented to domestic demand driven, with the support of increasing consumption demand bolstered by healthy employment, income growth and strong corporate balance sheets. “I remain overweight in consumer discretionary and underweight in export sectors to benefit from these trends.” Tse also showed slight worries on the impact of Japan disaster, but he believed that the impact is largely limited as the degree of inter-dependency is limited.
Tse reminded that investors should pay attention to rising interest rate and currency swings in the Asia region. He agrees that China no longer exports deflation to the OECD. “China will likely export inflation to the rest of the world. This could prove to be a multi-year trend. “If inflation is with us, interest rates will inevitably have to rise at some point.” Tse claimed. “Currency swings and their impacts on companies are worth to keep an eye on too. For example, the fundamentals of Korean exporters can change significantly under different currency valuation dynamics.”
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It is not an easy task for any investment manager to be a true bottom-up stock picker, but we genuinely believe that Tse is a role model of a persistent and successful bottom-up picker. He claimed himself a Growth-at-Reasonable-Price investor, which means he doesn’t mind to pay for growth, if the premium is reasonable from the team’s point of view. We are particularly impressed by his keystones of investment philosophy shared with us. “I did not sell more when the market panicked, and I did not buy more when the market chased beta.” It’s hard, but Tse did.
Company Profile Fidelity International provides investment products and services to individuals and institutions in the UK, continental Europe, the Middle East and Asia Pacific. Established in 1969, the company has over 5,400 staff in 23 countries and total customer assets US$309.7 billion as at 31 March 2011. Fidelity has over 7 million customer holdings and manages more than 750 equity, fixed income, property and asset allocation funds. Fidelity’s fund managers receive research from one of the largest proprietary research teams, covering 99% of the world’s largest listed companies. Fidelity International is an independent company which is privately owned. |
