Report Release Date: 14 Dec 2009
Analyst: Alfred Ming
Executive Summary
People: Allan Liu is a seasoned campaigner who has risen through Fidelity's analyst ranks. He is backed by a well resourced and highly experienced team in Hong Kong.
Parent: Fidelity International is one of the largest fund management companies globally with over GBP 140 billion AUM. The firm tends to promote from within and its fund managers usually rise through the analyst ranks.
Process: The bottom-up process deployed here is growth orientated but manager Allan Liu is mindful of the price he pays.
Performance: Stellar returns since Allan Liu assumed charge in July 2003; investors were more than compensated for the risk taken.
Price: The fund's TER is in line with the category median.
Morningstar Opinion
Fidelity Funds-South East Asia isn’t your typical Asia-Pacific ex-Japan offering, but we think very highly of it.
The chief attraction here is the fund’s management. Allan Liu joined Fidelity in 1987 and took the helm of this fund in July 2003. He also managed single-country and ASEAN funds in the region starting in 1990, and he ran the US sold version of this offering from 1993 until 2008, delivering strong results during his tenure. Liu also benefits from the backing of one of the stronger teams in the region, with 31 analysts at his disposal.
Liu’s style has been consistent throughout his tenure here. He targets high-quality, cash-generative companies with sound corporate governance and reputable management. He prefers stocks not only with above-average earnings, but also improving profitability relative to both the sector and the market as well. The fund is by no means a value offering, but nor does Liu throw caution to the wind: He tries to limit price risk in the portfolio by avoiding companies that look expensive relative to their historical price range, domestic and global industry peers, and discount to NAV.
Investors should keep in mind that this is not your typical Morningstar Asia-Pacific ex-Japan fund--its benchmark is ex-India and ex-Australia, so the fund is structurally underweight in those two key markets relative to its average peer. Moreover, Liu is primarily a bottom-up stock-picker, but his process can result in notable biases. For example, in late 2008 and in early 2009, Liu overweighted telecommunication names for their defensive qualities. More recently, he had cut that weight and moved to emphasize consumer discretionary names such as Hyundai Motor, which has held up its sales in the US market throughout the downturn, and also stocks such as BYD Company and Tencent Holdings, as Liu believed they were getting more high-value-added business. The fund was also recently slightly overweight in financials, but Liu has been selective there. For example, he had avoided Singaporean banks on the view that they would offer limited loan growth and lower near-term growth prospects.
Such bets are not without risk and the fund’s above average Morningstar Risk scores reflect this. However, Liu is experienced across market cycles and has long displayed an ability to execute the process well. Even in 2008, while the fund lost a staggering 48.3%, it still lost less than 61% of its category peers and lost just a hair more (26 basis points) than its benchmark. Over the past three and five years through 30 Nov. 2009, the fund ranked in the top 4% and top 1% of its category, respectively.
The fund’s experienced manager, his consistent and clear strategy, coupled with the support he enjoys from Fidelity’s analyst staff, earn the fund a Superior rating. For investors seeking exposure to the region, we think it’s a compelling choice.
*Returns are in USD terms.
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