Winner: Fidelity Asian Values
Nitin Bajaj has made an impressive start as manager of Fidelity Asian Values (FAS). It held up much better than any of its peers in a difficult 2015 and was again among the top performers in 2016 when the benchmark index stormed ahead.
The trust’s resilience in 2015 reflects Bajaj’s belief that investing is as much about protecting against the downside as it is about participating in the upside. ‘I want to buy good companies when either they are ignored or the market misunderstands the business. These are times when you can buy stocks at valuations which provide a lot of upside for investors,’ he says.
Conversely, he rarely buys into good businesses when valuations are high, because there is then little margin of safety or room for error. ‘Return of capital is as important as return on capital,’ he declares.
Bajaj believes the key to successful investment is to know more about the companies he invests in than others do, and the way to achieve that is ‘research, research and more research'. In this he is assisted by his own background as one of Fidelity’s top research analyst and by its 50-strong Asian research team.
The trust’s board adjusted FAS’s remit to focus on smaller Asian companies when Bajaj took charge, and he says his chances of discovering hidden gems is enhanced by the sector’s sparse coverage by other professional investors.
The trust can employ gearing, which Bajaj says he will do when he has more ideas than money. However, he can hold cash if he is struggling to find attractively priced opportunities, and had 12 per cent net cash at end January.
Highly commended: Invesco Asia
Invesco Asia (IAT) has the second best three-year NAV total returns in its sector. Ian Hargreaves has been sole manager since January 2015, having previously been co-manager with Stuart Parks.
He's been UK-based since 2005, but previously spent 10 years as an analyst in Invesco’s Hong Kong office.
Hargreaves differs from his sector peers in using a top-down macroeconomic overlay to guide his decisions. As a result the trust has an overweight position representing 21 per cent of the trust’s net asset value in South Korea, where he believes improved corporate governance is being overlooked by investors, and 15 per cent in India.
Like Bajaj, he looks to invest in companies whose share prices are substantially below his estimate of fair value, particular those with competitive advantages and balance sheet strength.
Technology accounts for a third of the portfolio, including a 14 per cent weighting in Chinese internet companies, such as NetEase and Baidu. The trust has recently been running with net cash.
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