While Asia’s landscape has experienced no shortage of major shifts over the past decade, a consistent process and leveraging a deep network of locally based research analysts has driven strong long-term returns (see figure. 1 below) for investors in the Fidelity Asia Fund. 10 years on from taking over the Fund, Portfolio Manager Anthony Srom recently sat down to reflect on how he has navigated this remarkable period and discuss some of the key issues facing investors in the region today.
The Fidelity Asia Fund provides investors with exposure to Asia’s long-term growth story though a concentrated portfolio of just 25-35 stocks. The Fund has been managed by Anthony Srom since June 2014, employing a consistent approach which focuses on stock-by-stock portfolio construction through the analysis of fundamentals, sentiment and valuations.
Anthony looks to invest in stocks where he has a differentiated view of a company and/or the market in which it operates. So, while the portfolio is broadly style neutral, new positions often tend to exhibit a contrarian, value bias. Several measures are employed to ensure that diversification is not compromised by the concentrated nature of the portfolio, with position sizes based on conviction, correlations, liquidity, and volatility.
This approach has delivered a compelling, long-term track record through multiple market shifts and cycles.
Lessons learnt at a young age
Anthony was a competitive tennis player in his youth. Beginning at just age four, he competed at the national level in Australia, among names like Mark Philippoussis, who would later become a tennis star. Anthony applies learnings he gained from his tennis days to his career now.
This very competitive environment not only presented a physical challenge, but a huge psychological component that is often overlooked. There are a lot of similarities between professional sports and investing: they require discipline, a team behind the scenes, and both can be highly stressful environments.
Being a good tennis player takes more than having a good forehand. It requires a good backhand, good volleys, a good fitness level, and a good head on your shoulders. Too with investing, Anthony believes that one of his biggest strengths lies in his ability to be multifaceted and adaptable.
The importance of keeping conviction and a level head through volatile markets
Most notably during the hype-driven China A-share bull market of 2014-2015. Running up to the market sell-off in mid-2015, the Fund was, at times, running a significant underweight as we saw a persistent disconnect between company fundamentals and hype-driven valuations.
Anthony draws deeply on Fidelity’s global research platform and will assess whether the fundamentals of a company are being ignored due to a wave of positive or negative sentiment towards an investment, which can lead the Fund to adopt contrarian positioning versus the broader market.
Opportunities in the current environment
Some markets across the region look expensive and there is little focus on potential risks, with India and Taiwan such examples. Others, particularly China and ASEAN, have been ignored and pockets of value and underappreciated fundamentals are appearing.
Against this mixed backdrop, the Fund’s process remains centred around building a high-conviction, concentrated portfolio of best individual stock ideas designed to offer attractive risk/reward potential at compelling entry level valuations.
Views on tech and the artificial intelligence (AI) theme
12 months ago, information technology (IT) was one of the largest sector overweight positions within the portfolio. Rather than e-commerce platforms, the focus was on tech hardware - for example, TSMC, MediaTek and Zhen Ding in Taiwan, SK Hynix in Korea, as well as an off-benchmark position in Netherlands-based ASML which derives a significant proportion of its revenue from Asia. Improving supply-demand dynamics, rather than the rise of AI, was key to the investment thesis at that time.
The AI theme has since taken hold and Anthony now has a contrarian stance towards many AI-driven stocks, where the theme, rather than business fundamentals, has driven stock prices up. News on AI-related capex potentially fails to factor-in downside risks to adoption/growth. While AI is delivering productivity benefits, we expect these to be passed on largely to customers via lower prices - it is not yet delivering new revenue streams or margin expansion for corporates broadly.
From our experience of past tech cycles, we see potential for a period of disappointment as companies work out how to adopt AI. IT is currently one of the Fund’s largest sector underweight positions.
Figure 1. $10,000 invested in the Fidelity Asia Fund, since Anthony’s appointment
Chart period: 1 May 2014 - 30 June 2024
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Total net returns represent past performance only. Past performance is not a reliable indicator of future performance. Returns of the Fund can be volatile and in some periods may be negative. The return of capital is not guaranteed. Benchmark: MSCI AC Asia ex-Japan Index NR, effective 1 January 2010. Benchmark data prior to 1 January 2010 is a blend of the MSCI Asia ex-Japan index and the MSCI All Country Asia ex-Japan Index NR: NR at the end of the benchmark name indicates the return is calculated including reinvesting net dividends. The dividend is reinvested after deduction of withholding tax, applying the withholding tax rate to non-resident individuals who do not benefit from double taxation treaties.
