Fidelity Asian Values: successful Asian small cap specialist

Long-term investors who don’t mind a little extra risk might be able to improve their portfolio’s performance by including a modest allocation to areas that others often overlook. A good example are the small cap stocks in Asia, which are about as far off the beaten track as it is possible to go.

When considering this type of asset class, it makes sense to pick a fund with a proven history of beating its benchmark. One such is Fidelity Asian Values, an investment trust that has recently announced another year of outperformance to add to its strong long-term track record.

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Objective and approach

Fidelity Asian Values aims to achieve capital growth by mainly investing in the stock markets in Asia ex Japan. Longstanding manager Nitin Bajaj typically has a two-to-three-year investment horizon, with the performance measured against a small cap benchmark spanning the region.¹

Bajaj looks for smaller Asian companies with best-in-class management teams and dominant positions, which have been mispriced by the market.² He mainly seeks to outperform via his bottom-up stock selection decisions, with the small caps offering a fertile hunting ground as they tend to be under researched.³

The fund has a benchmark agnostic, value-oriented strategy that means the returns are likely to be significantly different to the index. It is an approach that should benefit from the fact that small cap value stocks in the region are available at a significant discount to their growth stock peers, with the portfolio trading on a PE ratio of 10.4 times earnings versus 17 times for the benchmark.⁴

The underlying portfolio

It is a relatively diversified portfolio with the top 50 positions at the end of September accounting for 71.3% of the assets. Another notable feature is the 17.6% investment in large cap stocks worth more than £10 billion that are excluded from the index, along with the significantly higher allocation to the micro caps valued at less than £1bn.⁵

There are also some important active country allocations, with China and Indonesia being meaningfully overweight, while more expensive markets like India and Taiwan are materially underweight. The most favoured sectors are: Financials, Consumer Staples and Energy.⁶

Performance

Fidelity Asian Values has built up a strong long-term track record, with annualised share price growth of 7.4% per annum since the performance commencement date of 13 June 1996, compared to 6% from the benchmark.⁷ The fund has continued this trend under Bajaj’s ten year tenure, reflecting his strong stock-selection skills.⁸ Past performance is not a reliable indicator of future returns.

Another contributory factor is the use of contracts-for-difference, a type of derivative that can be used to profit from price movements in either direction. It is these instruments that provide the gearing, which can magnify the potential returns when applied successfully.⁹

Important information: - investors should note that the views expressed may no longer be current and may have already been acted upon. This fund invests in overseas markets and so the value of investments can be affected by changes in currency exchange rates. This fund invests in emerging markets which can be more volatile than other more developed markets. Before investing, please read the relevant key information document which contains important information about each investment trust. The shares in Fidelity Asian Values are listed on the London Stock Exchange and their price is affected by supply and demand. Investment trusts can gain additional exposure to the market, known as gearing, potentially increasing volatility. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. 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.