This stock picker has held his biggest win for 11 years (and still holds it)

This stock picker has held his biggest win for 11 years (and still holds it)

This article first appeared in Livewire on 15 July 2024

There's letting your winners run, and then there's really letting your winners run

This interview was taped on Friday 5 July 2024.

How many investors can say they found a stock, bought it, and held onto it for 11 years? Well, unless you're a) of a certain age that this is possible and b) you bought Commonwealth Bank or CSL at its early 1990s floats, the chances are this is not a story for which you will have first-hand experience. But Anthony Srom, Portfolio Manager for the Fidelity Asia Fund (now also available through the Fidelity Asia Active ETF), can attest to this experience.

Srom, a veteran Asian stock picker, discovered his biggest win at an individual stock level when the markets hated it. And he still holds it - 11 years since he first purchased it.

"I was seeing a lot of emails in my inbox - sell this sector, sell this stock, it's all over, inventories are going to build up. That sentiment was very negative but we worked with the analyst to look at the financials and look at the industry," Srom says.

"The stock generates a very high return on capital, very high margins, very good pricing power through history, growing dividend per share. So what? If the market's more worried about the next 12 months, I'm more worried about the next 3-4 years."

In fact, keeping an eye out for stocks attracting overwhelming negative sentiment from the consensus is how Srom has found many of his winners. It also explains why he doesn't hold two of the most well-known and largest stocks in Asia - Alibaba and Tencent.

To find out the name of the stock Srom has held for more than a decade, tune into this episode of The Pitch. In this video, you'll also hear about the one thing that has Srom so excited about the Asia-Pacific region going forward as well as the one question he is most asked by investors today.

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What is the most important investing lesson you have learned in your career?

Srom: Two stand out for me, and it is putting it in the context of the background I came from. Before going to Singapore, I was in the Australian investment markets developed market stocks usually go from cheap to neutral to expensive. You learn pretty quickly up in Asia that it goes from ridiculously cheap to cheap to neutral to expensive, and then ridiculously expensive.

So you have some different parameters that you've got to work around. One of the key differences driving that is sentiment up in the region. And for example, a lot of high retail participation in China is something that I'll point to - and you saw that in 2014/15.

Another key lesson for me as an investor was just to pay attention to what you are seeing on the short side. The funds I manage are long only, but again, if you think a company is a buy but a lot of the free float might be shorted, there's a fair chunk of money going against you. So being a lot more receptive to something like that has been a key learning for me as well.

What was your biggest win and what was your biggest loss? What did you learn in each case?

Srom: I think the biggest win as a portfolio manager was Kweichou Moutai (SHA: 600519) in China. It manufactures a product called baijiu, which is rice wine for all intents and purposes. It has about 50+% alcohol content. So think of it almost like a Chinese version of whiskey.

What happened there? Well, Xi Jinping came to power in about 2012, started the corruption crackdown immediately, and given this is a high-end product, a lot of it was consumed by the military and government. It totally fell out of favour with the market. I was seeing a lot of emails come through your inbox, sell this sector, sell this stock, it's all over, inventory's going to build up. So again, that sentiment that I referenced was very negative. So you work with the analyst, look at the financials, look at the industry. The stock generates a very high return on capital, very high margins, very good pricing power through history, and growing dividend per share.

So what if the market's worried about the next 12 months? I'm more concerned about the next three to four years, and that was the opportunity. The fund invested in it back pre-2013, topped up more in 2014 and [we] still hold it today. So I think if you look at the attribution, it's been the biggest winner for the portfolios. On the flip side, some of your losers are deep scars and get open from time to time, but that's fine. So I'll throw the name out there. It's like Slater and Gordon. We all know what happened with that name. It's pretty familiar to a lot of people in Australia. Again, you went for too long against short sellers, and that's what I was referring to earlier as one of the key learnings as an investor up in the region when you're looking at AsiaPac ex-Japan,

What has you most excited as an investor and what is the one thing keeping you up at night?

Srom: I think the market is dangerous at the moment up in AsiaPac ex-Japan. It's hard to get excited. But in terms of the level of interest, where are the pockets of neglect that you see up there? China is one of them, but also the ASEAN region I think is quite neglected, particularly countries like the Philippines, Thailand, and Malaysia. So you've got some ideas in those markets that you're working on. [We have] executed on one of them at this particular point in time, and given the portfolios that I manage are relatively concentrated in nature, you don't need a lot of ideas. I'm just looking for the best ideas.

So that's something that's quite of interest to me. But in terms of what you lose sleep over at night, it's more what occupies most of your thought process at the moment and that would be AI, which we've seen really take off in the last 12 months, and particularly in this region.

Taiwan is a huge beneficiary of that as a market. The other interesting country that's challenging your thinking is India. It just keeps going up and going up and going up, but I think the risks at the margin are also going up. So it's an unpalatable risk-reward, payoff profile in my perspective, but the market doesn't care at this particular point in time. So when you look at it, both countries now I think would be number two and number three weighted in the region. So they're quite significant now.

What is one question you get asked most these days and how do you answer it?

Srom: I think it's a little bit different. I think when you go outside the region, so to Europe or even here, I think a lot of questions are more macro and geopolitical. For example, China versus Taiwan. So the questioning is slightly different.

I think it's what are you doing in the fund. When you meet clients, they want to know what's changed in the last six to nine months, given what we've just discussed in terms of what's happened with markets, it's quite extreme up there. The headline [return] has been okay, maybe up 5-6% year to date, but you've had it torn in different directions and the level of concentration that's driven that return is very extreme.

So people talk about the Magnificent Seven (or Magnificent Five, whatever it is in the US) and point being the concentrated nature of the market there driving returns. But in Asia, it's doubly so. Two-thirds of the market year to date up in Asia has been driven by TSMC (TPE: 2330) and Tencent (HKG: 0700). Whereas in the US, two-thirds of the market has been driven by the top five stocks - Nvidia and the next four. But no one talks about that.

So when you go into meetings, well, what have you done? And what the portfolio has done is the last six to nine months sold a lot of technology into the steep rally that we've seen. Why did you do that and how's the portfolio positioned?

15 July 2024

Anthony Srom

Anthony Srom

Portfolio Manager, Fidelity Asia Fund strategies

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