Fidelity Asian Values plc (LON:FAS) has announced its final results for the year ended 31 July 2024.
Highlights:
- During the twelve-month period ended 31 July 2024, Fidelity Asian Values PLC reported a Net Asset Value (NAV) return of +3.2% and ordinary share price total return of -1.7%.
- The benchmark index, the MSCI All Countries Asia ex Japan Small Cap Index, produced a total return of +13.7% over the same timeframe.
- The Board has announced a final dividend of 14.5 pence per share.
Financial Highlights
| Assets as at 31 July | 2024 | 2023 |
| Gross Asset Exposure | £442.9m | £440.8m |
| Net Market Exposure | £416.2m | £413.7m |
| Total Shareholders’ Funds | £392.0m | £394.6m |
| NAV per Ordinary Share1 | 551.66p | 549.33p |
| Gross Gearing1 | 13.0% | 11.7% |
| Net Gearing1 | 6.2% | 4.9% |
| ————— | ————— | |
| Share Price and Discount data at 31 July | ||
| Ordinary Share Price at year end | 496.00p | 520.00p |
| Year high | 542.00p | 534.00p |
| Year low | 476.00p | 423.00p |
| Discount to NAV per Ordinary Share at year end1 | (10.1%) | (5.3%) |
| (Discount) year low/Premium | (2.2%) | 0.8% |
| (Discount) year high | (11.9%) | (12.9%) |
| ————— | ————— | |
| Results for the year ended 31 July | ||
| Revenue Return per Ordinary Share1 | 14.24p | 15.17p |
| Capital Return per Ordinary Share1 | 2.06p | 39.95p |
| ————— | ————— | |
| Total Return per Ordinary Share1 | 16.30p | 55.12p |
| ========= | ========= | |
| Ongoing Charges for the year to 31 July | 0.95% | 0.96% |
| Variable Element of Management Fee3 | 0.19% | 0.07% |
| Ongoing Charges including Variable Element of Management Fee for the year to 31 July1 | 1.14% | 1.03% |
| ========= | ========= |
1 Alternative Performance Measures. See below
2 The variable element of the management fee is calculated over a rolling three year period with reference to the Benchmark Index.
Chairman’s Statement
This is my first Annual Report for the Company, having taken over as Chairman from Kate Bolsover at the last AGM in November 2023. As Kate noted in her Chairman’s Statement in last year’s report, your Portfolio Managers Nitin Bajaj and Ajinkya Dhavale have delivered periods of significant outperformance since Nitin’s appointment in April 2015. However, as we all know, the value of equity investments can go down as well as up, and there is no avoiding the fact that the year ended 31 July 2024 has been a relatively disappointing one for the Company and its shareholders.
In the year under review, the Net Asset Value (“NAV”) total return was +3.2%, while the Comparative Index (the MSCI All Countries Asia ex Japan Small Cap Index (net) total return (in sterling terms)) returned +13.7%. The total return to shareholders was -1.7% owing to a widening in the share price discount to NAV, which moved from 5.3% on 1 August 2023 to 10.1% at the period end.
During the period, Ajinkya Dhavale was appointed as the Company’s Co-Portfolio Manager to support and closely work alongside the Portfolio Manager, Nitin Bajaj. Ajinkya’s appointment helps to strengthen the investment process and manage key person risk.
Nitin and Ajinkya’s investment style is bottom-up, contrarian and value-focused. In simple terms this means they focus on individual company fundamentals and seek to avoid crowded trades where high company valuations may limit further upside. While this style has historically delivered differentiated investment returns, it can also lead to periods of underperformance when extreme momentum is driven by investors focusing on a narrow range of areas, as has been the case recently in countries, sectors and themes such as India, technology and artificial intelligence (AI).
You will find detailed information on the portfolio and its performance in the Portfolio Managers’ Review in the following section. In brief, however, your Portfolio Managers feel that many Indian companies, and technology stocks – particularly those related to AI – are overvalued, and they have been focusing their attention more on China, where they see attractive value opportunities, particularly in companies serving the domestic consumer. With China having been very out of favour among investors in the post-Covid period, the ‘caged upside’ in these companies has yet to be realised, and we believe that these stocks – selected through the same rigorous, consistent and research-intensive investment process that has delivered such good long-term returns for the Company – should achieve their potential in time.
As a Board, we are cognisant of the geopolitical risks around investing in China, given potential higher US trade tariffs and the impact of ‘de-globalisation’, and this has in part informed our decision to limit the aggregate China and Hong Kong exposure. The portfolio’s focus on more domestic names should limit the influence of global factors on these companies.
Board strategy day
As incoming Chairman of what is a relatively ‘new’ Board following a number of retirements and appointments in recent years, I was keen that we should ‘get back to basics’ and explore the factors that the independent non-executive directors of an investment company can and should be influencing. To this end, we undertook a strategy day earlier in 2024, where we reassessed discount management, competitor analysis, the rationale and mechanics of the variable management fee and its allocation to capital or revenue reserves, trading policy and liquidity considerations, and the implementation of and compliance with investment limits. One of the outcomes of the strategy day was the abovementioned decision to combine China and Hong Kong under a single investment limit, where previously there was a limit for each market, meaning that exposure could be significantly higher. While Nitin and Ajinkya are very much bottom-up investors, who select stocks based on company fundamentals and valuation rather than place of business or country of listing, as a Board we feel that the application of such limits is helpful in ensuring the portfolio remains diversified and that risks are not overly concentrated in any one area.
Due diligence trip
The whole Board normally visits Asia on a due diligence trip every other year. As incoming Chairman, I have been fortunate to visit the investment team in Singapore in the ‘off’ year, to deepen my understanding of how Fidelity’s large team of analysts, portfolio managers and other professionals work together to benefit the shareholders of the Company. With some 60 analysts across the region, each assigned a sector or subsector, there is an enormous volume of potential investment ideas, but the bar for inclusion in your Company’s portfolio is high, and I observed a healthy dynamic of rigorous challenge with plenty of lively debate between Nitin and the broader team. Having also sat in on meetings with investee companies, I was encouraged by the depth of the conversations and the collaborative feel of the interactions, with challenging questions answered well and a warm but professional relationship in evidence.
Discount management and share repurchases
With geopolitical tensions remaining high in a year also filled with notable global election activity, market conditions have continued to be unsettled, leading to a degree of volatility in the Company’s share price discount to NAV, which ranged during the period between 2.2% at its narrowest and 11.9% at its widest, finishing the year at 10.1%. Between 13 October 2023 and 31 July 2024, the Board approved the repurchase of 768,780 ordinary shares (1.0% of the issued share capital) for holding in Treasury, at a cost of £3,826,000. Since then and up to the date of this report, 687,461 shares have been repurchased as part of the Company’s active and ongoing discount management strategy. The primary purpose of share buybacks is to limit discount volatility, and at the AGM in November 2024 the Board will seek shareholder approval to renew the annual authority to repurchase up to 14.99% or allot up to 10% of the ordinary shares in issue.
The timing of repurchases of ordinary shares are made at the discretion of the Broker, within guidelines set by the Board and considering prevailing market conditions. Shares will only be repurchased in the market at prices below the prevailing NAV per ordinary share, thereby resulting in an accretive enhancement to the NAV per ordinary share. The shares repurchased are currently held in Treasury and would only be reissued at NAV per ordinary share or at a premium to NAV per ordinary share. The Board will consider cancelling shares when the percentage of shares held in Treasury exceeds 10% of the total issued share capital.
Marketing and promotion
Your Board is keenly aware that share buybacks alone are unlikely to eliminate a persistent discount to NAV; discounts are a function of supply and demand and, as such, increasing demand is at least as important as absorbing excess supply. As well as appointing a new director, Lucy Costa Duarte, who has a strong track record in marketing and distribution, we continue to allocate significant resources to marketing in order to increase shareholder value. Through Fidelity’s sales and marketing teams and internal and external PR partners, we have been working to increase the Company’s profile through digital and print advertising, sponsorship, events, direct marketing and press coverage. We also work with a third-party research provider, Kepler Partners, to produce regular notes on the Company, which are distributed widely and made available on the Company’s website. The focus on reaching both retail and professional (wealth manager) audiences is evident in the makeup of our share register, with 40% of our shares owned by direct investors through platforms, and 49% (up 4% over five years) by wealth managers on behalf of their clients.
Dividend
Your Portfolio Managers invest principally for long-term capital growth, but their value-oriented investment style tends to lead them towards unleveraged, cash-generative businesses that may themselves be able to pay rising dividends. In the last two years your Board has declared substantially higher dividends (14.0 pence per share in 2022 and 14.5 pence per share in 2023), compared with less than 9.0 pence per share in the three preceding years. We noted at the time that shareholders should not assume that such dividends would continue in the future.
The Board is recommending a final dividend of 14.5 pence per share for the year ended 31 July 2024 for approval by shareholders at the AGM to be held on 21 November 2024. We would reiterate, however, that income is an output rather than an aim of the investment process, and that no guarantees can be offered as to the level of any future dividends.
Gearing
Your Company can borrow additional money to invest on behalf of its shareholders, known as gearing. This can enhance returns for shareholders although, conversely, in falling markets, it can amplify losses. The Company’s formal gearing policy allows for maximum gross asset exposure of 140% of NAV (up to 130% in long positions and a maximum of 10% in short positions); however, your Board has set a goal for net market exposure to be in a range of 90% to 115% in normal market conditions. The level of gross gearing is directly proportional to the investment opportunities that your Portfolio Managers see. When they are optimistic about the outlook and there is a good supply of compelling investment ideas, then the Company will tend to be more geared. At the period end, gross gearing was 13.0% (2023: 11.7%) and net gearing was 6.2% (2023: 4.9%). This remains at the historically high end of the range during Nitin’s tenure, and, while the impact of gearing was slightly negative in the period under review, its level underlines the Portfolio Managers’ belief in the prospects for the Company’s investments. While higher than the long-term average level, gearing is not objectively ‘high’, particularly on a net basis, but instead reflects a degree of cautious optimism. Rather than using bank borrowing (which is often deployed across a portfolio on a pro-rata basis), the gearing is achieved using contracts for difference (“CFDs”), which, as a type of derivative, are implemented on a stock-by-stock basis. Each year, your Board reviews the use of CFDs, and we have again concluded that at the present time they remain a more efficient and flexible form of financing than either secured or unsecured debt, as well as enabling your Portfolio Managers to be fleet of foot in the deployment of gearing. We are fortunate that Fidelity has the infrastructure and capability to allow the use of CFDs in the portfolio; few other management groups can offer this.
Use of short positions
Fidelity’s capability in derivative instruments is also what allows your Portfolio Managers to ‘short’ stocks, which has again had a positive impact on returns in the year under review. A short position is taken on the view that the price of a stock or the value of an index will go down rather than up. Short positions are limited to a maximum of 10% of the portfolio and do not usually exceed 10 stocks; however, while relatively small in scope, this additional tool has materially added to performance since its introduction in late 2019. Total short exposure as at 31 July 2024 was 3.4% of net assets (2023: 3.4%).
BOARD OF DIRECTORS
Kate Bolsover stood down at the AGM in November 2023 after nine years of outstanding service as Chairman. As I stepped into the role of Chairman, Matthew Sutherland assumed my previous position as Senior Independent Director. Sally Macdonald has taken on the role of Chairman of the Management Engagement Committee from Michael Warren who will retire from the Board at the forthcoming AGM, when he will have served for 10 years. We are grateful to Michael for having stayed on an extra year in order to ensure a good handover of the institutional and historical knowledge of the Company. In June 2024 we welcomed Lucy Costa Duarte to the Board. Lucy is Investment Director for International Biotechnology Trust plc (‘IBT’) at Schroders and has a wealth of experience in marketing investment trusts, as well as previously having headed the emerging markets equity capital markets team at Citigroup. She will stand for election at the AGM in November.
As I noted above, there has been a significant number of retirements from and appointments to the Board in the past few years. Following Michael Warren’s retirement, I will be the longest-serving director, at five years, and we should now be entering a period of board stability. Your Board has a diversity of backgrounds and, we feel confident that we have an appropriate mix of skills to ensure the Company’s continued good governance.
ANNUAL GENERAL MEETING
The AGM of the Company will be held at 11.00 am on Thursday, 21 November 2024 at 4 Cannon Street, London EC4M 5AB (nearest tube stations are St Paul’s or Mansion House) and for those shareholders who are unable to attend the meeting in person, we will live-stream the formal business and presentations of the meeting via the Lumi AGM meeting platform. Full details of the meeting are given in the Notice of Meeting.
Nitin Bajaj, the Portfolio Manager and Ajinkya Dhavale, the Co-Portfolio Manager, will be making a presentation to shareholders highlighting the achievements and challenges of the year past and the prospects for the year to come. They and the Board will be very happy to answer any questions that shareholders may have.
Copies of their presentation can be requested by email at [email protected] or in writing to the Secretary at FILInvestments International, Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP.
Please note that investors on platforms, such as Fidelity Personal Investing, Hargreaves Lansdown, Interactive Investor or AJ Bell Youinvest, will need to request attendance at the AGM in accordance with the policies of your chosen platform. If you are unable to obtain a unique IVC and PIN from your nominee or platform, we would welcome your online participation as a guest. Once you have accessed https://web.lumiagm.com from your web browser on a tablet or computer, you will need to enter the Lumi Meeting ID which is 159-339-971. You should then selectthe ‘Guest Access’ option before entering your name and who you are representing, if applicable. This will allow you to view the meeting and ask questions, but you will not be able to vote.
OUTLOOK
Although the year under review has been a difficult one performance-wise, Nitin and Ajinkya continue to see good prospects for their portfolio of undervalued, quality businesses. With much of the investing world continuing to be in thrall to all things AI, your Portfolio Managers’ positioning in unloved and overlooked areas arguably carries limited downside potential, compared to other areas of the market, with the possibility of significant upside, as has been seen in previous years. As a contrarian strategy, there may be times when the portfolio is sailing into the wind, but Nitin and Ajinkya remain very disciplined and are sticking to their proven long-term investment process. You can read below more on their views and how they are expressing them in the portfolio.
CLARE BRADY
Chairman
10 October 2024
PORTFOLIO MANAGERS’ REVIEW
Nitin Bajaj was appointed as the Portfolio Manager of Fidelity Asian Values PLC on 1 April 2015. He is based in Singapore and has over 22 years’ investment experience. He is also the Portfolio Manager for the Fidelity Asian Smaller Companies Fund as well as the Fidelity China Focus Fund. He first joined Fidelity in 2003 as an Investment Analyst and then took over the Fidelity India Special Situations Fund and subsequently started the Fidelity India Value Fund. He managed these funds until November 2012, when Fidelity decided to sell its India business.
Ajinkya Dhavale has been appointed as the Company’s Co-Portfolio Manager to support and closely work alongside Nitin Bajaj. He has extensive experience in Asian markets and companies and shares a common investment approach and complementary investment experience with the Portfolio Manager. He has over 16 years of investment experience. He originally joined Fidelity as an analyst in 2013, covering the Auto, Cement, Telecommunications and Property sectors and is Co-Portfolio Manager of the Fidelity Asian Smaller Companies Fund.
QUESTION 1
How has the Company performed in the year to 31 July 2024?
ANSWER
During the year ended 31 July 2024, the Company’s net asset value (“NAV”) rose 3.2% as compared to the 13.7% total return from the Comparative Index (the MSCI All Countries Asia ex Japan Small Cap Index (net) total return (in sterling terms)). The total share price return was -1.7% due to the widening of the discount to NAV.
Overall, our stock selection contributed positively to the Company’s relative performance versus the Comparative Index. However, our market selection remained a drag against the backdrop of continued divergence in country performance.
Our investment process is driven by owning good businesses run by managements we trust and investing in them only when we have ample margin of safety – this often leads us to take contrarian positions as it is easier to find undervalued businesses in countries which are out of favour with investors. Following this philosophy, we have a significant percentage of our portfolio in China and Hong Kong and Indonesia compared to the index but in all these markets small caps saw a sharp fall in share prices and underperformed the regional small cap index. Conversely, India, where our portfolio has a large underweight due to valuation concerns, rose strongly and outperformed the index.
Chart 1: Country attribution over 12 months to 31 July 2024
| Average weight (%) | Cumulative returns | Contribution to relative returns (%) | |||||
| Company (%) | Index (%) | Relative (%) | Index (%) | Stock selection | Market selection | Total | |
| China + Hong Kong | +40.6 | +13.1 | +27.5 | -2.8 | +4.6 | -10.8 | -6.2 |
| India | +18.6 | +31.0 | -12.4 | +49.9 | -1.0 | -3.6 | -4.6 |
| Indonesia | +14.6 | +2.2 | +12.4 | -14.9 | +2.4 | -3.8 | -1.4 |
| Korea (South) | +9.1 | +15.6 | -6.5 | -3.4 | +1.0 | +1.2 | +2.2 |
| Australia | +5.2 | +0.0 | +5.2 | 0.0 | -0.4 | 0.0 | -0.4 |
| Singapore | +3.3 | +5.0 | -1.7 | 0.0 | +0.5 | +0.2 | +0.7 |
| Taiwan | +1.4 | +25.8 | -24.4 | +18.0 | +1.2 | -1.0 | +0.2 |
| Other Countries | +10.3 | +7.4 | +2.9 | +0.1 | -0.8 | +0.7 | -0.1 |
| ————— | ————— | ————— | ————— | ————— | ————— | ————— | |
| Total Primary Assets | +103.0 | +100.0 | +3.0 | -9.6 | |||
| Cash & others | -3.0 | 0.0 | -3.0 | -0.9 | |||
| ————— | ————— | ————— | ————— | ||||
| Total | 100.0 | 100.0 | 0.0 | -10.5 | |||
| ========= | ========= | ========= | ========= | ||||
Note: The table above uses figures calculated as a percentage of net assets.
Source: Fidelity International, 31 July 2024. Index: MSCI All countries Asia ex Japan Small Cap Index (net) total return (in sterling terms).
QUESTION 2
What stocks have been the main contributors and detractors to performance during the period and why?
ANSWER
It was not surprising that our top three contributors relative to the Index during the 12-month period were from India while our largest relative detractors were all from China and Hong Kong as it was very much in line with country performance within Asian small caps.
In India, our holdings in the country’s largest power trading company PTC India was a key contributor. It reported strong volume growth particularly for higher margin long-term trades. Exposure to Granules India added value as the small cap pharmaceuticals company continued to increase its leadership in high volume products such as paracetamol and new launches in higher margin drugs. Similarly, India’s 4th largest mortgage financier LIC Housing Finance benefited from its access to low-cost funds helping it focus mainly on prime borrowers and maintain high returns on equity and strong asset quality. We continue to like all of them but trimmed exposure on strong performance and reduced the margin of safety.
Most of the detractors in China and Hong Kong operate in consumption and housing driven sectors where near-term weakness in demand led to earnings downgrade as well as multiple deratings. For instance, Hong Kong-listed Galaxy Entertainment Group which is the second largest casino operator in Macau hurt returns due to increased competition and Chinese consumption recovery being slower than we had anticipated. However, tourism spending remains one of the most interesting areas in China given rising incomes, changing demographics and attractive valuations for Macau based casinos. Similarly, our holding in drug retailer Yixintang Pharmaceutical, which has a leadership in Yunnan province, fell on the back of the introduction of a price comparison system. Wecontinue to like its structural medium to long-term prospects as it consolidates in a fragmented sector. It provides low double-digit Return on Equity (“ROE”) which is a measure of the prospective return against the value of the shares, and trades about 8 times its 12 month forward earnings, which is a measure of the price of the shares against the likely future profits. Meanwhile, the biggest detractor China Overseas Grand Oceans is one of the country’s leading property developers focused on tier 3 cities that is gaining market share as weaker players are going out of business. It trades below 0.2x its book value, which is a measure of the price of the shares versus the value of the assets of the company. It provides about a 9% dividend yield.
While these companies have detracted from performance over the 12-month review period, their valuations reflect earnings expectations that are at trough levels providing us a significant margin of safety and upside potential.
QUESTION 3
The Company’s portfolio is overweight in China. Why do you prefer investment in China compared to other countries in the Asian region?
ANSWER
We do not invest in countries, we invest in businesses. Our higher exposure to China is driven by the bottom up security selection in a range of well-financed and well-run businesses where their current valuations provide a sufficient margin of safety compared to most other markets in the Asian region.
We understand the concerns investors have about China’s geopolitical issues, its property downcycle and weak consumption trends. In our opinion, the housing cycle downturn has been absorbed in a large measure and its negative impact on the economy will be felt to a lower extent next year. This is part of an economic cycle correction, but sound businesses will still be around, likely to be in better shape and emerge stronger as the cycle recovers. Given current valuations, there is significant upside on owning these businesses over a 3-year horizon. The cycle in China is not too dissimilar to the US cycle post the housing crisis in 2007 or the economic downcycle in India between 2011 and 2013.
In our opinion, China has created one of the best infrastructures in the world – both human and physical. The foundations are strong and hence our belief that the weakness we see currently is cyclical rather than structural. We believe in good businesses, run by competent and honest people and buying them at cheap prices. We are finding quite a few of these in China today and hence the significant overweight position in China.
QUESTION 4
Looking beyond China, where do you currently see the best opportunities?
ANSWER
Beyond China, Indonesia is one place that is providing opportunities to own a good mix of growth and quality businesses at attractive valuations as the market has lagged most of Asia over the last year. It is the third largest economy in the region after China and India with a strong demographic profile with tailwinds for consumption shifts as well as infrastructure development. The country has been more prudent with its public finances than other countries in the region. Our exposure to Indonesia is diversified across financials, building materials, industrials and consumer businesses that offer fairly high and sustainable returns at sufficient margin of safety. Indonesia has some of the strongest banking franchises with conservative underwriting culture. They have stable asset quality and benefit from structural growth as penetration levels are increasing from low levels. The consumer companies owned in Indonesia are also high-quality franchises with market leadership. This gives them strong pricing power and ability to generate margins that are higher than global peers over the long term.
We have also been adding exposure to businesses in Korea. The country’s ‘value up’ programme that pushes for governance reforms should yield positive outcomes from Korean corporates. We have selectively been adding positions in companies where there is considerable margin of safety built into current valuations to limit the downside, but potential for gains is immense if their management teams improve total shareholder returns through higher dividends and buybacks.
QUESTION 5
Small cap value stocks continue to outperform small cap growth stocks over the longer term. What has driven this and do you expect the pattern to continue?
ANSWER
Small cap value stocks have performed better than small cap growth stocks over the last 25+ years. This is essentially because the small cap value stocks have grown earnings faster than small cap growth stocks.
Over 80% of our portfolio remains in these value stocks as we believe they will continue to do better based on their superior earnings growth and higher cash returns in terms of dividends.
QUESTION 6
How do you view macro and geopolitical events and the effects they will have on your portfolio?
ANSWER
Macro and geopolitical events are not central to our decision-making but we realise we cannot ignore them entirely, as companies exist within business cycles and they are impacted by geopolitical events. So, we try to factor both into our decision-making predominantly at single stock level and at portfolio risk level. These give us guard rails rather than being the main driver of decision-making. Stock picking is the mainstay of the investment process. This has been its strength, and we feel we are better placed if we ‘stick to our knitting’.
For instance, we are aware of the tensions between the USA and China and feel that this is a long-term trend but it is beyond our expertise to predict specific events that can trigger near-term market responses. Therefore, we continue to follow our process and have chosen to focus more on opportunities in domestic-demand led Chinese businesses rather than the businesses that derive significant revenues from the US market.
At the same time, it is helpful to reiterate that macroeconomic factors are cyclical – they come and go – if we can construct a diversified portfolio of good businesses run by competent and honest management teams and invest at a price that leaves sufficient margin of safety, we should over time be able to generate returns for our investors over the medium to long term.
QUESTION 7
How does the Company consider governance and stewardship?
ANSWER
The investment process centres around good businesses managed by good people available at a good price, which implies that we actively look for a business that solves a problem for its consumers. The ‘good people’ behind a business respect law and regulation and take care of their employees, customers, the environment, and shareholders, as well as managing their businesses responsibly. We strongly believe that only an honest and competent management team will drive the business towards creating value over the long term. It is unlikely that a management team that has not focused on shareholder returns over the last 15-20 years will suddenly start putting the shareholder at the heart of what they do.
Fidelity International is a signatory of the UK Stewardship Code that sets globally recognised standards of stewardship for investors saving money on behalf of UK savers and pensioners. We support the Code’s aim of encouraging big investors to focus on promoting good corporate governance at the companies they invest in.
Fidelity’s stewardship activities support the responsible allocation of the Company’s assets in two main ways: by informing the investment process at the research and investment decision-making stages, and through leveraging our ownership position in companies with the aim of effecting positive corporate change.
QUESTION 8
What is your approach to gearing and short positions? And what impact have they had on returns during the year and over the longer term?
ANSWER
The level of gearing in the Company remains a function of the number of investment ideas we find. It increases when we see more ideas than money and it reduces (or we keep a higher cash balance) when we do not find as many ideas.
Gearing has recently increased as we have found investments in China, a market which has been out of favour with investors. However, valuations in many other parts are not as attractive. India remains expensive leading us to reduce exposure in this market.
QUESTION 9
What are some of the points that are important to remind the holders of the Company?
ANSWER
We own businesses that are better quality than the market and are currently priced at cheaper valuations than the market. This has been the bed rock of our investment process for over a decade. The portfolio’s Return on Equity (“ROE”) remains at a premium to the market while the Price to Earnings ratios of our holdings are at a significant discount.
The ROE metric of the portfolio is higher than that of the market implying the Company is generating superior returns for each pound of shareholder’s equity than the market. Further the blended Price to Earnings ratio of our holdings is at a significant discount which implies that we are paying a lower price for each potential pound of future earnings by our portfolio companies compared to the market as a whole.
This is driven by our historically high exposure to China, Hong Kong and Indonesia where businesses are undervalued versus their long-term returns potential, as well as due to our low exposure to India, given valuations in the Indian small cap segment are extremely expensive.
We do not predict market movements and have come to understand that markets are seldom rational in their short-term responses. Thus, we consistently focus on investing in good businesses, run by good management teams that are available at a suitable margin of safety. This is the approach that has stood the test of time generating sustainable performance for the Company in the long run and should do the same in the next few years.
NITIN BAJAJ AJINKYA DHAVALE
Portfolio Manager Co-Portfolio Manager
10 October 2024
Fidelity Asian Values Plc (LON:FAS) provides shareholders with a differentiated equity exposure to Asian Markets. Asia is the world’s fastest-growing economic region and the trust looks to capitalise on this by finding good businesses, run by good people and buying them at a good price.
