Report Release Date: 15 Sep 2010
Analyst: Mark Laidlaw
Morningstar Opinion
We think Fidelity Funds – China Focus is one of the more attractive options for dedicated exposure to this rapidly growing part of the world.
Since taking ownership of the fund in May 2006, Martha Wang has done a commendable job. An annualised return of 17.73% up to Aug. 2010 easily surpasses the Morningstar China Equity category average of 13.93%. The fund has typically slightly lagged in hot markets but has been consistent enough to rank in the category's top quartile over one-, three-, and five-year periods through Aug. 2010. Funds that invest in a single country such as China invite higher volatility compared with those focused on developed markets; it’s therefore encouraging that the fund's standard deviation (a measure of risk) is lower than both the benchmark and category average.
Wang followed the usual Fidelity career path, proving her worth as an analyst before taking on this fund after Patrick Lo departed in mid-2006. In our view, Wang makes good use of Fidelity's large team dedicated to covering the China/Hong Kong market. She is one of five portfolio managers (including Anthony Bolton who recently moved across from London) and five dedicated analysts. She can also seek counsel from more than 50 portfolio managers/analysts covering the Asia-Pacific region, providing a level of output and insight that is hard to match.
Given the cyclical nature of the Chinese market, it's not surprising that the fund has a growth tilt. Wang looks for quality firms (defined by management, balance sheet, and business model) and tends to favour those that are industry leaders, have high barriers to entry, or are low cost producers. Whilst valuation plays a role, she is willing to pay a premium if she has a strong conviction on a particular stock.
Wang is first and foremost a stock-picker, but some strategic themes have guided the shape of the portfolio over the last few years. Wang is an advocate of the Chinese consumer's resilience, particularly as the middle class continues to grow rapidly. This is evident in holdings such as Li Ning, a local competitor to brands such as Nike and Adidas. GOME Electrical Appliances and Ctrip, an online travel agency, are further examples. A second theme is the urbanisation of inland regions, which also fuels consumption growth and infrastructure improvements: This has led the manager to increase exposure to areas such as independent power producers and automakers. The other main theme that Wang has been capturing is the ongoing shift up the industrial value chain; Lenovo is a good example of a stock fitting this bill.
A word of caution--country-specific funds such as this are high-risk for a reason, and they should play only a niche role in a diversified portfolio. However, if you’re looking for a dedicated China play, FF – China Focus is one of the better options and accordingly is rated Superior.
*The above returns are in USD terms.
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