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- Views from Fidelity Asian Values following underwhelming half-year results
Over the six-month period ended 31 January 2020, the NAV of Fidelity Asian Values (FAS) fell by 13.2%, compared with a decline of 3.6% for the MSCI all countries Asia ex Japan index total return. Over the same period, the company’s share price decreased by 15.0%.
The company performed poorly before the covid-19 outbreak. Exposure to India’s PNB Housing Finance, was the biggest detractor to performance, owing to a slowdown in the housing market in India. As at 31 March 2020, India was FAS’s largest market market, accounting for 23.1% of the portfolio.
FAS’s manager said the following:
“This is an unprecedented event for everyone, and investors are having to opine on a topic for which they are not trained. Even scientists and epidemiologists are not certain in terms of how things will unfold over the next few months. Having said that, undoubtedly the economic impact will be quite severe in the short-term on both demand and supply. Looking at current earnings forecasts is pointless given the fluidity of the situation. We can model scenarios but frankly the dispersion in outcomes makes them meaningless. There are a number of unknown factors. For example, as China emerges from its lockdown measures, could we have a second wave of infections? Factories cannot “work from home” so the risk of a resurgence in cases certainly exists. For the rest of the world, we do not know how long the lockdown must last and, once lockdowns are lifted, the degree of freedom of movement that will be allowed. It’s very difficult to forecast when the recovery will begin and whether it will be quick or long drawn.
My working assumptions are listed below. I would take these views with a pinch of salt as forecasting a pandemic is obviously beyond my core competence. I am by no means a trained epidemiologist.
The new economic reality due to covid-19 has had an impact on our portfolio as well. Businesses we own will be impacted either due to lack of demand and/or due to lockdown of their facilities. Most businesses that we own have low levels of debt (actually most have net cash on their balance sheets) and will be able to weather the storm. They should come out in a stronger position (as weaker competitors either shut shop or are unable to invest in the business) as the economy stabilises. However, there are a few businesses which cannot endure zero revenues. As a result, I have made the following changes to the portfolio:
The manager went on to say:
“The company’s performance over the last nine months has been subdued and worse than the market returns. I am unable to explain market sentiment of many stocks – both in the portfolio and the market in general. There has been a dominance of growth companies, momentum strategy and stocks that fit a narrative (Technology, Bio-tech, Chinese Consumer, etc).
Stocks which are ignored or cheap, have become even more ignored. At times, the narrative of the stock market is different from the reality of business. This is true for value equities currently and cheap stocks have underperformed severely, with the valuation dispersion expanding further in the last few months. On a relative basis, the last time small cap value stocks were this cheap was in 1999!
My process of focusing on undiscovered stocks which have good underlying businesses, are well managed and available on cheap prices has been out of fashion and a headwind for performance. This is not an excuse but a reflection of how investment sentiment has worked over recent years.
Having said that, I have the utmost faith in my process. The most time-tested way of investing is to own good businesses, run by competent and honest managements and buy them at attractive prices. Avoiding bubbles and unsustainable valuations is key to long-term compounding, no matter how painful it is in the short-term.
Over time, the quality of business and valuations will matter.
The long-term value of any business will be driven by the cash flow it generates. Short-term market opinion on the value of a business should be meaningless except its impact on investor psychology (mine and yours) and unless we are forced to transact at these depressed valuations.
I am happy with the portfolio of companies we own – both the quality and price at which we own them. On average, we own vastly superior businesses versus the market and at significantly cheaper prices. This gives me confidence of robust returns in the future.
It has been a testing 9 months in terms of performance, but market fashions should not drive an investment philosophy. I look forward to what markets have to offer over the next three to five years and, in the meantime continue to work to find good businesses, run by good management teams and try to buy them at good prices.”
FAS’s geographical allocation, as at 31 March 2020
Holding | % of portfolio |
---|---|
India | 23.11% |
China | 19.94% |
South Korea | 12.60% |
Indonesia | 9.31% |
Hong Kong | 8.11% |
Taiwan | 5.92% |
Singapore | 4.51% |
Philippines | 4.18% |
Australia | 3.60% |
Other | 7.93% |
FAS: Views from Fidelity Asian Values following underwhelming half-year results
Can someone tell me the IPO price of Fidelity Asian Values plc. I can see the price at which it first traded in June 1996 but not the offer price
The shares were issued at 100p each. For every five shares, there was one free warrant attached.