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Fidelity Asian Values beats benchmark by almost 10%

Fidelity Asian Values says, over the six months to 31 January 2016, the company’s net asset value strongly outperformed the MSCI All Countries Asia ex Japan Index. The company’s NAV returned 3.1%, compared with a fall of 6.6% for the index. The share price return was 1.2%, the discount having widened from 10.7% at the start of the period to 12.4% at the end.

During the six-month period, the largest contributors to the fund’s performance were New Oriental Education & Technology, Power Grid Corporation of India and HM Sampoerna.

New Oriental Education & Technology is the largest after school tutoring service in China with a strong competitive position and pricing power. The business had been going through a period of substantial investment last year leading to low margins. As margins started to increase, the market took notice of the stock.

Power Grid Corporation of India is a government-owned monopoly business with strong earnings growth benefiting from a stable regulatory regime. It has a history of generating strong returns over cycles and is at an attractive
valuation.

HM Sampoerna is majority-owned by Philip Morris. The company is one of the largest cigarette-makers in Indonesia and has been gaining market share due to the strength of its brands. The highly cash generative business is run efficiently and enjoys strong pricing power. The position was sold in January as the stock price rallied and its valuation became expensive.

Positions that had a negative impact on performance during the period under review include International Housewares Retail, Slater & Gordon and China Mengniu Dairy.

International Housewares Retail has not performed as well as was hoped but remains a high conviction position. It is a Hong Kong based retail chain focused on house wares. It has more than a 50% share in the Hong Kong market
and more than a 10% share in the Singapore market. As a result of its understanding of its customer base, sourcing ability and logistics network, it maintains a strong position in both markets and is substantially larger than the second largest player. Its competitive position is much stronger in Hong Kong, where it has been operating for 25 years and which accounts for more than 100% of its profits, as its operations in Singapore and China are losing money.

Slater & Gordon was a relatively small position after it was reduced in the middle of 2015 to mitigate the unfavourable impact from the news flow relating to Quindell’s accounting practices. Towards the end of the year the
position was sold in light of expectations of a potential regulatory change in the UK which would dramatically reduce the number of claims available for the company to process.

China Mengniu Dairy was held for its strong position in the Chinese market where per capita milk consumption is only 25% of the world’s average. The government’s unprecedented focus on dairy quality after recent milk contamination issues has been driving out small players. However, due to the current deflationary environment, volume growth and price hikes have been difficult, while promotion costs and store rollouts are eroding margins. As a result, the position was liquidated.

FAS : Fidelity Asian Values beats benchmark by almost 10%

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