Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

SMALL cap funds offer one of the best sources of long-term capital growth and although they have been out-of-favour in the UK, there are other regions where the performance has held up. A good example is the Fidelity Asian Values investment trust that focuses on Asia ex Japan. 

Manager Nitin Bajaj took over in April 2015 as part of a change in mandate, with the new remit being to generate returns from a small-cap portfolio with a strong value bias. The reason for the switch to smaller companies was because they tend to be less well researched, which leads to greater valuation anomalies.

Bajaj uses a bottom-up stock selection approach to identify businesses with best-in-class management teams that have been mispriced by the market. These include companies with dominant market positions and strong capital returns that are attractively valued.

When carrying out the fundamental analysis he looks at various factors including: stock valuation, financial strength, the underlying cash flows and the company's competitive advantages, as well as its prospects and earnings potential. His style is tilted towards quality value and he has a two-to-three year investment horizon.

Little regard is given to the composition of the index, which can lead to a substantially different portfolio to the benchmark and mean that the performance can deviate markedly. The most significant geographic overweights are currently China and Indonesia, whereas the fund is underweight Taiwan due to the manager’s value style.

It is a strategy that has led to strong absolute and relative performance. The trust’s net asset value (NAV) was up by 9.8% over the 12-months to the end of March, comfortably outperforming its reference index that fell by 4.7%. The shares rose by 16.4% over the same period as the discount narrowed.

Fidelity Asian Values 5-year share price performance chart


Source: Yahoo Finance from 22.05.18 to 19.05.23 Basis: Share price in GBP. Excludes initial charge.

Past performance is not a reliable indicator of future returns

Bajaj says that investors seem to be rotating out of growth stocks and into value names in the Asian small cap space. “This trend should continue as small cap value stocks remain at a significant discount to small cap growth stocks in Asia.”

The manager’s confidence in the outlook is reflected in the gearing, the amount the trust borrows to invest, being maintained at the highest level during his tenure, at around eight percent on a net basis. It is also worth noting that although the discount has narrowed as a result of the strong performance, the shares are still available two percent below their NAV.

More on Fidelity Asian Values.

Five-year performance table

(%) As at 24 May 2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Fidelity Asian Values PLC 6.8 -29.4 61.4 -5.4 22.4

Past performance is not a reliable indicator of future returns

Source: FE, as at 24.05.23 Basis: Total returns in GBP. Excludes initial charge.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. The shares in the Fidelity Asian Values investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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