Fidelity Asian Values’s discount narrows to the benefit of shareholders – Fidelity Asian Values PLC (FAS) as delivered its financial annual report for the year ended 31 July 2018.
Performance – headlines
The company’s undiluted NAV rose by 2.2% on a total return basis. By way of comparison, its comparative index, the MSCI AC Asia Ex Japan PR USD rose by 5.7% .
Nitin Bajaj, the investment managers, is a value investor, who looks for companies before they become well known. The chairman of the company notes that the current market environment does not suit the investment manager’s value based investment approach but acknowledges that the performance is nonetheless disappointing for shareholders. Kate Bolsover, the chairman goes on to say that a strong narrowing of the discount from 7.0% to 1.8% has meant that the company’s share price rose by 8.2% over the same period and highlights that the company’s NAV and share price returns were positive at a time when the overall market environment became more challenging for equities.
Financial highlights:
- The NAV returned +2.2% (total return) over the year ended 31 July 2018.
- The discount narrowed from 7% to 1.8% over the period, as a result of the strong share price total return of +8.2%.
- The Directors recommend that a dividend of 5.50 pence be paid on 17 December 2018 (an increase of 10% on the prior year).
- The company adopted the new Variable Management Fee structure with effect from 1 August 2018.
Performance breakdown
Nitin Bajaj describes the performance over the last couple of years has having been “solid rather than spectacular”. Up until January 2018, technology stocks, where the fund had been underweight, continued to be popular. when that came off, the fund did well be not owning them.
The investment manager writes in the report on three companies that were acquired at a premium (more than 50% on average) – Programme Maintenance Services, Lifecarehealth Group and Zhaopin. He also on the performance of Tianneng Power, Dream International and Texhong Textiles (with all three stocks returning in excess of 50%). Detractors included G8 Education and Redington India Ltd.
Management Fee
The board reported in the half-yearly report published in April, that it had agreed a new variable fee arrangement with FIL Investment Services (UK) Limited.
The new arrangement has replaced the company’s annual tiered fee structure of 0.90% on gross assets up to £200 million and 0.85% on gross assets over £200 million.
The new fee reduces the headline annual base management fee from 0.90% on gross assets to 0.70% of net assets per annum plus a +/- 0.20% variation based on the company’s NAV per share performance relative to the Company’s Comparative Index.
The maximum fee that the Company will pay is 0.90% of net assets, but if the Company underperforms against the Comparative Index, then the overall fee could fall as low as 0.50% of net assets.
The new fee arrangement has been effective since 1 August 2018 and provides an overall reduction from the current management fee structure. Full details of the new fee calculation are set out in the Directors’ Report.
Outlook – Nitin Bajaj
“I agree with Warren Buffet when he says: “forecasts tell you more about the forecaster than the future.” With this in mind, I try to spend my time understanding the businesses that I invest in rather than forecasting the direction of the economy or the stock market.
The world is uncertain and I expect it to be a bumpy ride over the next 5 years. I am conscious that this is what I said last year, but I remain convinced that in times such as these, it is even more important to own good businesses. They must not be overly reliant on a positive macro environment, and must be run by competent management teams. As investors we must own them at prices which leave enough margin of safety for adverse economic situations. We will continue to work hard to accomplish this.”
FAS : Fidelity Asian Values’s discount narrows to the benefit of shareholders