Lawrence Hanson

Fidelity International will be launching four active exchange traded funds (ETFs) for Australian investors. Its Fidelity Australian High Conviction Fund, Fidelity Asia Fund, Fidelity India Fund and Fidelity Global Future Leaders Fund will be made available as actively managed ETFs via the Australian Securities Exchange (ASX) under ticker codes: ‘FHCO, ‘FASI, ‘FIIN and ‘FCAP. The Fidelity Asia Fund, Fidelity India Fund and Fidelity Global Future Leaders Fund will launch on 31 May 2024 and the Fidelity Australian High Conviction Fund, previously known as the Fidelity Australian Opportunities Fund (renamed on 20 May 2024), will launch on 3 June 2024.

Fidelity’s managing director, Lawrence Hanson commented: “Making these four strategies available as ETFs allows investors easy access to some of our most popular funds in Australia, with solid long-term track records.  Whether they are seeking exposure to offshore market opportunities like Asia, India or global small to mid-caps, or to a high quality concentrated Australian strategy, investors can now tap into our 400+ investment professionals in one simple trade.

“Investors enjoy the ease of investing and transacting through ETFs. We have seen growing demand for accessible and flexible investment solutions among Australian investors, and the ETF structure enables us to offer our clients an alternative option on how they invest in our products.

“That is why we are launching more of our top strategies through this vehicle,” said Mr Hanson.

The Fidelity Australian High Conviction Fund was established on 31 July 2012 and is managed by Australian-based Casey McLean. The Fund is a concentrated portfolio of 20-40 Australian high-quality stocks, with risk management at its core.  The Fund leverages Fidelity’s 20 years’ investment experience in Australia and insights from our global network.

The Fidelity Asia Fund was established on 29 September 2005 and is managed by Singapore-based portfolio manager, Anthony Srom. The Fund is a concentrated portfolio of 20 to 35 of our best investment opportunities across the Asia Pacific (ex-Japan) region, and benefits from insights from our large on-the-ground team and 50 years’ investing in the region.

The Fidelity India Fund was established on 29 September 2005 and is managed by Singapore-based portfolio manager, Amit Goel. The Fund gives investors access to the growth story of India, by investing in a diversified portfolio of 40 to 60 stocks. Using research from our large-on-the-ground team of analysts, we’ve been focused on finding quality businesses with strong management for more than 18 years.

The Fidelity Global Future Leaders Fund was established on 28 September 2020 and is managed by Australian-based portfolio managers, James Abela and Maroun Younes. The Fund invests in quality high-potential companies in global small and mid-caps.  The fund is co-managed, using a unique investment process designed to deliver smoother returns through market cycles, and benefits from the insights from our 400+ investment professionals around the world.

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Anthony Srom

With China’s post-Covid recovery proceeding at a slower-than-anticipated pace and investors unsettled by broader macroeconomic uncertainty, portfolio manager of the Fidelity Asia Fund, Anthony Srom, demonstrates the value of active stock picking with an overview of the current environment in Asia.

“We remain cautiously active buyers in China. The team’s core stock-picking approach, underpinned by Fidelity’s on-the-ground analytical presence, still allows us to generate alpha for our portfolios,” says Srom. Using China’s internet segment as an example, he explains that the market is overly focused on a few leading household names that have become potential value traps. At the same time, lower-profile media companies are generating more substantial advertising revenue and delivering higher profit margins. Yet, their valuations are still lower than the big players.

There have been well-documented issues in the construction and development segments of China’s property sector. As a result, people looking to upsize their homes are turning to the secondary market instead. “When homeowners upgrade, there is a natural desire to decorate or refurbish the property,” notes Srom. Therefore, the team sees opportunities in companies that manufacture building materials, such as waterproofing and paints. This example shows how active stock selection can deliver results even within a problematic sector.

Capacity discipline provides a solid foundation for technology investment

Turning to the technology sector, particularly those key players outside China, Srom points out, “Markets are always challenging, but it’s just particularly challenging at the moment.” Yet, there are company-specific opportunities, particularly in the technology hardware space, with positive sentiment towards semiconductor manufacturers. “If we look at our investment process revolving around fundamentals, sentiment, and valuation, then we identified that technology was depressed in the second half of 2022 and the early stages of 2023,” he explains. “Then artificial intelligence providers suddenly appeared, boosting the narrative around technology hardware in Asia.”

Yet, this upturn is not wholly sentiment driven, as the structural drivers underpinning Asia’s technology sector, such as solid capacity discipline – particularly in the memory segment – are robust. “In the short term, I don’t believe a recession is likely to derail our thesis,” adds Srom. He does think that the market could become too exuberant and start to overvalue companies. At the same time, the team is also mindful of knee-jerk reactions to geopolitical events.

Seeking value in an expensive market

India is another market not to shy away from for investors in Asia. Indeed, macroeconomic news flow is positive, and the country’s economy is being boosted by favourable demographics. In this case, Srom again pays close attention to the team’s assessment of a company’s fundamentals, sentiment and valuation and finds that many share prices are overly expensive. This process, however, does pinpoint emerging opportunities across India’s regional banks and information technology services providers that are in a solid position to outperform. “These segments aside, the fundamentals of businesses across the board in India must improve to justify their elevated valuations,” explains Srom.

A future view of Korea

Given its significant technology-related profile, Korea is very sentiment-driven and thematic-driven at the moment. But outside of the tech segment and defence-related concepts that the market is focused on, pockets of largely neglected, domestic-oriented companies are starting to look attractive following substantial de-ratings in the past 12 to 18 months.  Some leading domestic internet platform are also in scope, given their valuation has troughed, and the team can see attractive upside going forward.

Less can be more

These select examples reinforce our view that active management is crucial given the current market conditions. Srom is also keen to underline that there’s a perception that a concentrated portfolio carries more risk. But that’s not necessarily the case if the fewer stocks held are carefully chosen. “Ultimately, we work hard to identify the best ideas in the region that we believe can deliver relative outperformance to investors,” he concludes.

By Anthony Srom, portfolio manager – Fidelity Asia Fund

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