Caution towards the surge in technology stocks by the managers of Fidelity Asian Values (FAS) saw the £377m Asia Pacific smaller companies investment trust underperform in the year to 31 July.
Although Fidelity’s Nitin Bajaj and Ajinkya Dhavale did very well holding Taiwanese chip giant TSMC as their biggest position, a decision to underweight tech stocks as they climbed to 27% of their benchmark proved costly in the short term.
Annual results showed a total investment return of 6.1%, down from 12.4% in the previous year, that fell short of the 9.1% from the MSCI All Country Asia ex Japan Small Cap index. Shareholders did slightly better though with a 7.8% return as the discount, or gap, to net asset value narrowed to 5.4% from 6.7%.
The company celebrated its 30-year anniversary in June. Chair Clare Brady said since launch FAS had grown £1 into £8.36 compared to £5.89 from the benchmark. More recent performance has not been so strong, with a total five-year return of 46% that lags the 84% from rival Aberdeen Asia Focus (AAS), though it beats Scottish Oriental Smaller Companies (SST), which has returned 24.3% and this week launched a strategic review.
Our view
QuotedData senior analyst David Batchelor said: “FAS’s underperformance reflects the difficulty of maintaining a contrarian value approach in an Asian market increasingly dominated by AI-related stocks. The managers’ decision to reduce exposure to Taiwanese technology companies proved premature, while their substantial positions in Indonesia and China also weighed on returns.
“A potentially significant development is the proposal to double FAS’s permitted short exposure from 10% to 20% of net assets. The managers believe there is an unusually rich opportunity to profit from overvalued companies, and shorting has historically been a useful contributor to returns. However, the £23.1m loss on derivatives during the year, including £10.2m of realised losses on closed short CFDs, illustrates the risks of betting against momentum-driven markets. Net gearing has also increased from 3.4% to 10.1%, adding to the portfolio’s sensitivity to market movements. FAS’s long-term record provides a strong argument for retaining its distinctive approach, but the proposed increase in shorting capacity deserves careful scrutiny.”
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