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magazineA Warren Buffett-styled way to play emerging markets
It is a fairly bold call to suggest buying an emerging markets fund right now but we believe there are good reasons to back Fidelity Asian Values (FAS).
The investment trust is built very much along Warren Buffett lines – manager Nitin Bajaj is a confirmed fan of the Sage of Omaha, and does his best to cast a similar investment critique over the portfolio.
Bajaj took over the trust in April 2015 with a remit to create long-term capital value by investing in high quality, yet mispriced stocks anywhere east of Istanbul, outside of Japan.
His preference is smaller and medium-sized companies that tend to get overlooked by most investors so it’s where an edge can be gained and bargains snapped up.
Typical targets have relatively low debt and diversified revenue streams capable of putting up 50%-plus investment returns on a three year horizon. It is a crowded space with an estimated 15,000-odd companies to choose from, which suggests opportunities will not be in short supply come rain or shine.
The trust has no magic investment formula and tends to look beyond geopolitical and macroeconomic data in favour of investment analysis heavy lifting by putting more analysts on the ground than anyone else.
Fidelity Asian Values has adapted its portfolio as risk has escalated in emerging markets. This means holding bigger names, which have held up better in recent months. A good example is Bajaj’s decision to take a stake in China Mobile, where 2.47% of the trust’s funds now sit.
India is also a popular target, where US/China trade bickering has limited impact and internal investment has stayed firm. Examples include Power Grid Corp of India (its biggest stake), planes leasing company BOC Aviation, and Housing Development Finance Corporation, a major housing development project funder on the sub-continent.
The strategy has paid off in the past and should continue to do so, we believe.
Net asset value (NAV) has increased by more than 72% over five years, and the share price has beaten the Investment Trust Asia Pacific (ex-Japan) benchmark in each of the past one, three and five year periods, making the trust a top quartile performer.
The cost of that success is a 12-month average NAV discount of 2% evaporating and leaving the shares trading at a 4% premium. This, we believe, shows there is plenty of investor demand for emerging markets trusts able to demonstrate long-run success from simple
and sensible investment principles. (SF)
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