The twists and turns of China’s trade war with the US have translated into big moves for the country’s stock market over the past two years. The CSI 300, an index of Shanghai and Shenzhen-listed stocks, dropped nearly 23 per cent in sterling terms amid the volatility of 2018. But last year it was one of the world’s best performing markets with a return of more than 31 per cent.
Experienced manager
Rigorous investment process
Strong performance in all markets
Regional diversification
High Asian tech exposure
Chinese equities could continue to offer strong returns as the trade war stabilises, meaning some exposure is warranted. But volatility is still likely, and could be triggered by events such as another deterioration in China’s relations with the US, unexpected events such as the recent coronavirus outbreak in the region or slowing Chinese economic growth, which fell to a 29-year low of 6.1 per cent in 2019. So most investors will need a more diversified approach than a single-country China fund.
One way to get this is a reliable Asian equities fund that offers exposure to China, but also other countries in the region that could benefit from strong demographics and improving US/China relations. Options include Fidelity Asia (GB00B6Y7NF43) whose manager, Teera Chanpongsang, has spent 25 years at Fidelity and has run the fund since 2014 with impressive results. Fidelity Asia is in the top quartile of the Investment Association (IA) Asia Pacific ex Japan fund sector in terms of performance over one, three and five years.
Mr Chanpongsang chooses investments for the fund on the basis of their individual merits rather than due to sector or geographic considerations. He focuses on businesses that he thinks are trading below their intrinsic value, such as those with improving fundamentals or growth potential that doesn't seem to be reflected in their share prices. Mr Chanpongsang also looks for restructuring and turnaround opportunities and, although the fund holds some popular growth names, he says that he will not "pay any price for growth”.
The fund has tended to do well in both up and down markets. For example, in 2017, when MSCI AC Asia ex Japan index made a sterling loss of 9.1 per cent and the IA Asia Pacific ex Japan fund sector average was a fall of 9.8 per cent, Fidelity Asia was down less with an 8.4 per cent fall. In the improved conditions of 2019 the fund was up 21.2 per cent – well ahead of both this index and the IA Asia Pacific ex Japan sector average.
The fund is diversified by country and sector, with 39.5 per cent of its assets in China at the end of 2019, 13.7 per cent in South Korea, 12.7 per cent in India, 11 per cent in Taiwan and 10.6 per cent in Hong Kong. Its biggest sector exposures are financials, information technology and consumer discretionary. It had 83 holdings at the end of 2019.
Analysts at investment platform Interactive Investor say that the fund's manager tends to favour “companies operating in emerging Asian economies, such as China and India, at the expense of the more mature markets, including South Korea, Taiwan, Hong Kong and Singapore”.
Fidelity Asia has sizeable exposure to the big tech names that have tended to perform strongly – like many other Asian equity funds. These are major constituents of the market so difficult to avoid, but could prove vulnerable if market difficulties arise. The fund’s 10 largest holdings accounted for nearly half – 46.6 per cent – of its assets at the end of the year and included Alibaba (US:BABA), Taiwan Semiconductor Manufacturing (TAI:2330), Samsung Electronics (SMSD) and Tencent (HKG:700).
However, these stocks have performed well over longer periods and the fund does not only invest in these – it is well diversified across other sectors, which should partially offset any volatility those experience. And its manager has up until now mostly made the right investment choices so, despite short-term periods of volatility, the fund has made strong total returns.
So if you are looking for strong growth over the long term and can tolerate volatility along the way, Fidelity Asia is still a good core holding for exposure to a key area for growth. Buy. DB
Fidelity Asia (GB00B6Y7NF43)
Price | 1539p | Mean return | 14.76% |
IA Sector | Asia Pacific ex Japan | Sharpe ratio | 1.01 |
Fund type | Open-ended investment company | Standard deviation | 13.13% |
Fund size | £3.1bn | Ongoing charge | 0.94% |
No of holdings | 83 | Yield | 0.93% |
Set-up date | 15-Oct-12 | More details | www.fidelity.co.uk |
Manager start date | Teera Chanpongsang: 01/01/2014 |
Source: Morningstar as at 16 December 2019
Performance
Fund/benchmark | 1-year total return (%) | 3-year cumulative total return (%) | 5-year cumulative total return (%) | 10-year cumulative total return (%) |
Fidelity Asia | 23.24 | 48.03 | 93.8 | 177.36 |
IA Asia Pacific ex Japan sector average | 17.38 | 31.73 | 59.7 | 123.31 |
MSCI AC Asia ex Japan index | 16.36 | 34.98 | 64.28 | 130.79 |
Source: FE Analytics, as at 20 January 2020
| ||
Financials | 30.1% | |
Information technology | 21.1% | |
Consumer discretionary | 19.2% | |
Communication services | 7.8% | |
Consumer staples | 7.0% | |
Energy | 3.3% | |
Healthcare | 3.0% | |
Real estate | 2.9% | |
Industrials | 2.7% | |
Materials | 0.8% | |
Utilities | 0.7% |
Source: Fidelity, as at 31 December 2019
Country breakdown
China | 39.5% |
South Korea | 13.7% |
India | 12.7% |
Taiwan | 11.0% |
Hong Kong | 10.6% |
Thailand | 3.7% |
Indonesia | 3.60% |
Singapore | 3.00% |
Philippines | 0.70% |
Vietnam | 0.10% |
Source: Fidelity, as at 31 December 2019