Fidelity Asian Values PLC (LON:FAS) has announced its half-yearly results for the six months ended 31 January 2024.
Financial Highlights
- During the six months ended 31 January 2024, Fidelity Asian Values PLC reported a Net Asset Value (NAV) total return of -2.4% and an Ordinary Share Price total return of -2.5%.
- The Comparative Index, the MSCI All Countries ex Japan Small Cap Index, returned +3.6%.
- The Portfolio Managers remain focused on investing in good business, run by good management teams, available at a suitable margin of safety.
PORTFOLIO MANAGERS’ HALF-YEARLY REVIEW
PERFORMANCE REVIEW
Over the six month period ended 31 January 2024, the net asset value (“NAV”) total return of Fidelity Asian Values PLC was -2.4%, underperforming the Comparative Index, the MSCI All Countries Asia ex Japan Small Cap Index (net) total return (in sterling terms), which was +3.6%. Over the same period, the Company’s share price total return was -2.5%. Whilst the Company’s discount was 5.7% at the reporting period end, it widened to around 10% at the end of March, however, it was trading narrower than its peer group.
COMPANY’S NAV, SHARE PRICE AND COMPARATIVE INDEX TOTAL RETURNS (AS AT 31 JANUARY 2024)
| NAV total return (%) | Share Price total return (%) | Comparative Index total return (%) | |
| Tenure (since 1 April 2015) | +107.4 | +123.2 | +118.5 |
| 5 Years | +46.0 | +33.1 | +63.6 |
| 3 Years | +28.5 | +27.5 | +21.9 |
| 1 Year | -1.5 | -2.5 | +7.5 |
| 6 Months | -2.4 | -2.5 | +3.6 |
| 3 Months | +0.2 | +5.4 | +6.0 |
| ========= | ========= | ========= |
Source: Fidelity International, 31 January 2024. Total returns include net income reinvested. Comparative Index: MSCI All countries Asia ex Japan Small Cap Index (net) total return (in sterling terms).
Our stock selection continued to contribute positively to the Company’s relative performance versus the Comparative Index. However, our market selection was a drag against a backdrop of continued divergence in country performance (see table below on country attribution). Small cap stocks in India rose by 26.7% and those in Taiwan gained by 9.6% during the six month review period. In contrast, small cap stocks in China and Hong Kong fell by 28.2% and 18.4% respectively. Since our investment process can lead us to take contrarian positions in undervalued businesses, our combined exposure to China and Hong Kong was close to its historical high (six month average of 40.6% versus the Index average weight of 13.0%). China and Hong Kong continue to underperform and have dragged down the Company’s relative returns compared to the Index in the period under review. However, stock selection has been positive, and valuations remain attractive.
COUNTRY ATTRIBUTION OVER 6 MONTHS TO 31 JANUARY 2024
| Average weight (%) | Contribution to relative returns (%) | |||||
| Company (%) | Index (%) | Relative (%) | Stock selection | Market selection | Total | |
| Korea (South) | +7.8 | +16.1 | -8.3 | +1.4 | +1.2 | +2.6 |
| ASEAN | +20.7 | +15.1 | +5.6 | +1.8 | -1.2 | +0.6 |
| Others | +12.2 | 0.0 | +12.2 | -0.4 | 0.0 | -0.4 |
| Taiwan | +1.8 | +25.3 | -23.5 | +0.4 | -1.3 | -0.9 |
| India | +20.0 | +30.5 | -10.5 | -0.6 | -2.1 | -2.7 |
| China & Hong Kong | +40.6 | +13.0 | +27.6 | +4.5 | -9.0 | -4.5 |
| ————— | ————— | ————— | ————— | ————— | ————— | |
| Total Primary Assets | +103.1 | +100.0 | +3.1 | +7.1 | -12.4 | -5.3 |
| Cash & others | -3.1 | 0.0 | -3.1 | -0.7 | ||
| ————— | ————— | ————— | ————— | |||
| Total | 100.0 | 100.0 | 0.0 | -6.0 | ||
| ========= | ========= | ========= | ========= | |||
Source: Fidelity International, 31 January 2024. Index: MSCI All countries Asia ex Japan Small Cap Index (net) total return (in sterling terms).
In contrast to China and Hong Kong, small cap stocks in India and Taiwan continued to perform well despite their exuberant valuations. As a result, four of our five top contributors were Indian companies and four out of five of our top detractors were from China as can be seen from the tables below.
KEY CONTRIBUTORS OVER SIX MONTHS (AS AT 31 JANUARY 2024)
Order Security | Average Active Weight (%) | Gain/Loss (%) | Contribution to Portfolio Returns (%) |
| Top 5 | |||
| 1 PTC India | +2.1 | +113.2 | +1.5 |
| 2 LIC Housing Finance | +1.1 | +49.5 | +0.5 |
| 3 Bank Negara Indonesia (Persero) | +2.7 | +24.0 | +0.5 |
| 4 Granules India | +2.1 | +28.8 | +0.5 |
| 5 Axis Bank | +3.7 | +11.9 | +0.3 |
| ————— | ————— | ————— | |
| Total | +3.3 | ||
| ========= |
Source: Fidelity International, 31 January 2024.
KEY DETRACTORS OVER SIX MONTHS (AS AT 31 JANUARY 2024)
Order Security | Average Active Weight (%) | Gain/Loss (%) | Contribution to Portfolio Returns (%) |
| Top 5 | |||
| 1 China Overseas Grand Oceans Group | +1.2 | -53.4 | -1.0 |
| 2 China Yongda Automobiles Services | +1.1 | -41.2 | -0.5 |
| 3 Zhongsheng Group | +0.7 | -51.9 | -0.5 |
| 4 Focus Media Information Technology | +1.8 | -23.8 | -0.5 |
| 5 Arwana Citramulia | +1.7 | -22.9 | -0.5 |
| ————— | ————— | ————— | |
| Total | -3.0 | ||
| ========= |
Source: Fidelity International, 31 January 2024.
The detractors were essentially Chinese consumer-related companies (China Yongda Automobile Services, Zhongsheng Group and Focus Media Information Technology) and the real estate company China Overseas Grand Oceans Group, which fell due to weak demand and negative investor sentiment. Indonesia’s largest ceramic tiles maker Arwana Citramulia also suffered weak demand due to project delays ahead of the country’s elections. We believe these to be temporary losses and continue to own the businesses for their longer-term growth prospects and attractive valuations.
On the other hand, our holdings in India (PTC India, Granules India, LIC Housing Finance and Axis Bank) and Bank Negara Indonesia (Persero) contributed the most to the Company’s relative performance. We continue to have a positive outlook on most of these stocks as they still offer a sufficient margin of safety. We trimmed our exposure to PTC India and Granules India as a result of strong performance and a reduced margin of safety.
India’s fourth largest mortgage financier LIC Housing Finance was the second largest contributor to returns and is one of the top 10 positions in the Company. As it is promoted by Life Insurance Corporation, India’s largest and 100% government owned insurance company, it has access to low-cost funds, helping it to focus mainly on prime borrowers and maintain high returns on equity and strong asset quality. This sustainable low to mid-teen return on equity generator and book value compounder is currently trading at par with its one year forward book value and seven times its one year forward earnings.
INVESTMENT STRATEGY
Our investment strategy is to continue to focus on investing in good businesses, run by good management teams and available at a suitable margin of safety. Our investment process leads us to high quality undervalued businesses and a consistent value tilt.
We believe our approach to investing helps to generate sustainable performance for the Company in the long-term. Although our value style has underperformed the growth style in recent years, we believe this headwind should, at some point, become a tailwind. Small cap value stocks are currently trading at close to all-time high discounts relative to both their large cap and (as can be seen from the chart in the Half-Yearly Report) their small cap growth counterparts. Value stocks also generate superior earnings growth over time compared to growth stocks and provide better cash returns, in terms of dividends.
Macro-economic trends are difficult to forecast for anyone and building a portfolio of stocks based on such views is even more challenging. However, we do believe macro risks are more short-term in nature and owning businesses which are better quality than the market at attractive valuations has been the bedrock of our investment process for over a decade.
It has served us well in the last ten years and should continue to reward us well for the future. As can be seen from the charts in the Half-Yearly Report, the Return on Equity of our portfolio has frequently been at a premium to the market while the Price to Earnings ratio of our holdings is at a significant discount.
OUTLOOK
We are comfortable with the Company’s portfolio as it stands today. We continue to have an overweight exposure to China since we are finding a significant margin of safety in owning several well-financed and well-run businesses. As the world’s second largest economy, where consumption is expanding as a share of GDP, we believe that both earnings and multiples of our Chinese holdings will re-rate favourably from depressed levels. Conversely, our relative exposure to India is close to our historical low as the small cap index in India is now 40% more expensive than Asian small caps and 30% more expensive than Indian large caps. In India and Indonesia, we have focused on well-run financial companies which have attractive valuations. These are good long-term compounders as credit is under-penetrated and the well managed banks have significant industry tail winds. Meanwhile, we continue to avoid areas that most investors find fashionable, such as AI-driven technology hardware in Taiwan and Korea. The sector has seen a capex boom post COVID due to higher-than-average demand. We are seeing earnings downgrades as new supplies come in and demand falls back, as the AI hype subsides. This strategy has served us well in the past ten years and we believe it will continue to reward us well over the future.
NITIN BAJAJ AJINKYA DHAVALE
Portfolio Manager Co-Portfolio Manager
8 April 2024 8 April 2024
TWENTY LARGEST HOLDINGS AS AT 31 JANUARY 2024
The Asset Exposures shown below measure exposure to market price movements as a result of owning shares, corporate bonds, equity linked notes and derivative instruments. The Fair Value is the actual value of the portfolio as reported on the Balance Sheet. Where a contract for difference (“CFD”) is held, the Fair Value reflects the profit or loss on the contract since it was opened and is based on how much the price of the underlying share has moved.
| Fair Value £’000 | |||
| Asset Exposure | |||
| £’000 | %1 | ||
| Long Exposures – shares unless otherwise stated | |||
| Axis Bank | |||
| Private sector bank | 15,781 | 4.2 | 15,781 |
| Bank Negara Indonesia (Persero) (shares and corporate bond) | |||
| Banking institution | 13,801 | 3.7 | 13,801 |
| HDFC Bank | |||
| Private sector bank | 12,623 | 3.4 | 12,623 |
| Genpact (shares and long CFD) | |||
| Global professional services firm delivering digital transformation for businesses | 11,120 | 3.0 | 7,110 |
| Indofood CBP Sukses Makmur | |||
| Producer of packaged food products | 10,753 | 2.9 | 10,753 |
| Bank Mandiri (Persero) | |||
| Banking institution | 10,495 | 2.8 | 10,495 |
| PTC India | |||
| Provider of power trading solutions in India | 9,855 | 2.6 | 9,855 |
| LIC Housing Finance | |||
| Housing finance company | 9,377 | 2.5 | 9,377 |
| BOC Aviation (long CFDs) | |||
| Global aircraft operating leasing company | 8,880 | 2.4 | 100 |
| Granules India | |||
| Pharmaceutical manufacturing company | 8,349 | 2.2 | 8,349 |
| Galaxy Entertainment Group (long CFD) | |||
| Developer and operator of integrated entertainment and resort facilities | 7,964 | 2.1 | 59 |
| CapitaLand India Trust (shares and long CFD) | |||
| Property trust | 7,029 | 1.9 | 6,284 |
| Chow Sang Sang Holdings International (shares and long CFD) | |||
| Jewellery retailer | 6,992 | 1.9 | 6,311 |
| Gold Road Resources | |||
| Gold production and exploration company | 6,273 | 1.7 | 6,273 |
| Taiwan Semiconductor Manufacturing Company (long CFDs) | |||
| Developer, manufacturer and distributor of semiconductor related products | 6,243 | 1.7 | 606 |
| Focus Media Information Technology (shares and equity linked notes) | |||
| Advertising solution provider | 6,223 | 1.7 | 6,223 |
| Ciputra Development | |||
| Property developer | 6,127 | 1.6 | 6,127 |
| Arwana Citramulia | |||
| Ceramics manufacturer | 5,845 | 1.5 | 5,845 |
| Crystal International Group (shares and long CFD) | |||
| Manufacturer of clothing | 5,702 | 1.5 | 5,453 |
| Federal Bank | |||
| Private sector bank | 5,500 | 1.5 | 5,500 |
| ————— | ————— | ————— | |
| Twenty largest long exposures | 174,932 | 46.8 | 146,925 |
| Other long exposures | 242,569 | 64.9 | 220,268 |
| ————— | ————— | ————— | |
| Total long exposures before futures (142 holdings) | 417,501 | 111.7 | 367,193 |
| ========= | ========= | ========= | |
| Add: long futures | |||
| MSCI All Countries Asia ex Japan Index Future 15/03/2024 | 3,773 | 1.0 | (49) |
| Hang Seng China Enterprises Index Future 27/09/2024 (call option) | 1,621 | 0.4 | 260 |
| ————— | ————— | ————— | |
| Total long exposures | 422,895 | 113.1 | 367,404 |
| ========= | ========= | ========= | |
| Short exposures | |||
| Short CFDs (11 holdings) | 12,440 | 3.3 | 649 |
| Short future (1 holding) | 1,538 | 0.4 | (98) |
| Call option (1 holding) | 16 | – | – |
| ————— | ————— | ————— | |
| Total short exposures | 13,994 | 3.7 | 551 |
| ========= | ========= | ========= | |
| Gross Asset Exposure2 | 436,889 | 116.8 | |
| ========= | ========= | ||
| Portfolio Fair Value3 | 367,955 | ||
| Net current assets (excluding derivative assets and liabilities) | 6,023 | ||
| ————— | |||
| Total Shareholders’ Funds/Net Assets | 373,978 | ||
| ========= | |||
1 Asset Exposure (as defined in the Glossary of Terms in the Half-Yearly Report) is expressed as a percentage of Total Shareholders’ Funds.
2 Gross Asset Exposure comprises market exposure to investments of £368,002,000 plus market exposure to derivative instruments of £68,887,000.
3 Portfolio Fair Value comprises investments of £368,002,000 plus derivative assets of £1,872,000 less derivative liabilities of £1,919,000.
INTERIM MANAGEMENT REPORT AND DIRECTORS’ RESPONSIBILITY STATEMENT
BOARD CHANGES AND SUCCESSION
The Board has a careful succession plan in place. As part of this plan, Kate Bolsover stepped down from the Board at the conclusion of the Annual General Meeting (“AGM”) on 29 November 2023. On the same date, Clare Brady succeeded her as Chairman. Matthew Sutherland succeeded Mrs Brady as the Senior Independent Director. Sally Macdonald took over from Michael Warren as the Chairman of the Management Engagement Committee from 3 April 2024.
As was reported in the Annual Report for the year ended 31 July 2023, Mr Warren agreed to stay on the Board for an additional year beyond his nine year tenure to ensure that institutional and historical knowledge of the Company, as well as his marketing expertise, was not lost. He will retire from the Board at the conclusion of the AGM in November 2024.
A recruitment process has been conducted for his replacement as a non-executive Director using the services of Cornforth Consulting, an external consultant that has no association with the Company. As a result of this process, Lucy Costa Duarte will be appointed to the Board with effect from 1 June 2024. This will ensure a smooth handover before Mr Warren steps down from the Board. Mrs Costa Duarte is a specialist in marketing strategy and investment relations in the investment trust sector. She is a Marketing Ambassador for the Association of Investment Companies, a non-executive Director of MIGO Opportunities Trust plc and a part-time Director of Investor Relations for Schroders – International Biotechnology Trust plc. She is a past director at Citigroup where she headed the emerging markets Equity Capital Markets team in London.
APPOINTMENT OF CO-PORTFOLIO MANAGER
Ajinkya Dhavale has been appointed as the Company’s Co-Portfolio Manager to support and closely work alongside the Portfolio Manager, 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. Mr Dhavale’s appointment helps to strengthen the investment process and manage key person risk.
DISCOUNT MANAGEMENT AND SHARE REPURCHASES
The Board closely monitors the Company’s share price discount to its NAV and will undertake active discount management where necessary, the primary purpose of which is to limit discount volatility. Repurchases of ordinary shares are made at the discretion of the Board, within guidelines set by it 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 enhancement to the NAV per ordinary share. In order to assist in managing the discount, the Board has shareholder approval to hold in Treasury any ordinary shares repurchased by the Company, rather than cancelling them. Any shares held in Treasury would only be reissued at NAV per ordinary share or at a premium to NAV per ordinary share.
There has been market volatility in the reporting period, and at times the Company’s discount has widened in reaction to this. The Board, therefore, approved the repurchase of 137,825 ordinary shares into Treasury during the six month reporting period. Since then and up to the latest practicable date of this report, a further 337,980 ordinary shares have been repurchased into Treasury.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board, with the assistance of the Manager (FIL Investment Services (UK) Limited), has developed a risk matrix which, as part of the risk management and internal controls process, identifies the key existing and emerging risks and uncertainties faced by the Company.
The Board considers that the principal risks and uncertainties faced by the Company continue to fall into the following categories: economic, political and market; investment performance (including the use of derivatives and gearing); cybercrime and information security; level of discount to net asset value; key person; environmental, social and governance (ESG); business continuity and operational (including third-party service providers); and shareholder relationship risks. Other risks facing the Company are tax and regulatory risks. Information on each of these risks is given on pages 28 to 32 in the Strategic Report section of the Annual Report for the year ended 31 July 2023 which can be found on the Company’s pages of the Manager’s website at www.fidelity.co.uk/asianvalues.
Whilst the principal risks and uncertainties remain the same as at the last year end, the magnitude of their uncertainty continues to grow with the ongoing conflicts in Ukraine and the Middle East. Geopolitical tensions, such as those between the US and China, and China and Taiwan, are exacerbating economic headwinds, such as the cost of living crisis; inflation; high interest rates; food supply crisis; and the threat of cyberattacks on critical infrastructure. The Board remains vigilant about the changing scale of such risks.
Climate change continues to be a key principal risk confronting asset managers and their investors. Globally, climate change effects are already being experienced in the form of changing weather patterns. Climate change can potentially impact the operations of investee companies, their supply chains and their customers. Additional risks may also arise from increased regulations, costs and net-zero programmes which can all impact investment returns. The Board notes that the Manager has integrated ESG considerations, including climate change, into the Company’s investment process. The Board will continue to monitor how this may impact the Company as a risk, the main risk being the impact on investment valuations and potentially shareholder returns.
Investors should be prepared for market fluctuations and remember that holding shares in the Company should be considered to be a long-term investment. The Investment Company structure means that the Portfolio Managers are not required to trade to meet investor redemptions and so they are able to hold investments for a longer period.
The Manager has appropriate business continuity and operational resilience plans in place to ensure the continued provision of services. This includes investment team key activities, which also covers portfolio managers, analysts and trading/support functions. The Manager reviews its operational resilience strategies on an ongoing basis and continues to take all reasonable steps in meeting its regulatory obligations, assess its ability to continue operating and the steps it needs to take to serve and support its clients, including the Board. It has an appropriate control environment in place.
The Company’s other third-party service providers also have similar measures in place to ensure that business disruption is kept to a minimum.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
The Manager has delegated the Company’s portfolio management of assets and company secretariat services to FIL Investments International. Transactions with the Manager and related party transactions with the Directors are disclosed in Note 13 to the Financial Statements below.
GOING CONCERN STATEMENT
The Directors have considered the Company’s investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio, its expenditure and cash flow projections. The Directors, having considered the liquidity of the Company’s portfolio of investments (being mainly securities which are readily realisable) and the projected income and expenditure, are satisfied that the Company is financially sound and has adequate resources to meet all of its liabilities and ongoing expenses and can continue in operational existence for a period of at least twelve months from the date of this Half-Yearly Report.
This conclusion also takes into account the Board’s assessment of the ongoing risks as outlined above.
Accordingly, the Financial Statements of the Company have been prepared on a going concern basis.
Continuation votes are held every five years and the next continuation vote will be put to shareholders at the AGM in 2026.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure and Transparency Rules (“DTR”) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge that:
a) the condensed set of Financial Statements contained within the Half-Yearly Report has been prepared in accordance with the Financial Reporting Council’s Standard FRS 104: Interim Financial Reporting; and
b) the Portfolio Managers’ Half-Yearly Review and the Interim Management Report above include a fair review of the information required by DTR 4.2.7R and 4.2.8R.
The Half-Yearly Report has not been audited or reviewed by the Company’s Independent Auditor.
The Half-Yearly Report was approved by the Board on 8 April 2024 and the above responsibility statement was signed on its behalf by Clare Brady, Chairman.
BY ORDER OF THE BOARD
FIL INVESTMENTS INTERNATIONAL
8 April 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.
