Ajinkya Dhavale has been made co-portfolio manager of the £448.8m Fidelity Asian Values trust, as announced in the company’s half-year trading results today (9 April).
Dhavale, who has worked as an equity analyst and portfolio manager at Fidelity for 12 and-a-half years, is based in Singapore. He previously worked as an investment analyst for Bajaj Allianz Life in India and, before that, as an analyst at Motilal Oswal Financial Services.
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Dhavale will now work closely alongside portfolio manager Nitin Bajaj, who has been at the trust’s helm for nine years. Bajaj has worked at Fidelity since 2003, having originally joined as a research analyst in London. He is also now based in Singapore.
Fidelity Asian Values’ board said: “[Dhavale] has extensive experience in Asian markets and companies and shares a common investment approach and complementary investment experience with the portfolio manager. Mr Dhavale’s appointment helps to strengthen the investment process and manage key person risk.”
Performance headwinds
Over six months to the end of January this year, the investment trust’s NAV return fell by 2.4%, compared to its MSCI All Countries Asian ex Japan Small Cap index benchmark’s gain of 3.6%. The trust’s discount also widened from 5.7% – at the reporting period end – to 10.4% today. However, this is a narrower discount than its average peer in the IT Asia Pacific Smaller Companies sector at 14.9%.
Due to volatile market conditions over the six-month reporting period, the board approved the repurchase of 137,825 of ordinary shares. Since the end of the reporting period, it has bought an additional 337,980 ordinary shares.
The trust’s overweight position in Chinese equities has been a contributing factor towards negative returns, according to its portfolio manager, FIL Investment Services. The trust’s performance was further hurt on a relative basis by the divergence in performance between Indian small caps and their Chinese and Hong Kong counterparts, with the former rising by 26.7% and the latter falling by 28.2% and 18.4%, respectively.
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It said: “Since our investment process can lead us to take contrarian positions in undervalued businesses, our combined exposure to China and Hong Kong was close to its historical high (six-month average of 40.6% versus the index average weight of 13%). China and Hong Kong continue to underperform and have dragged down the company’s relative returns compared to the index in the period under review. However, stock selection has been positive, and valuations remain attractive.”
The portfolio manager added: “We continue to have an overweight exposure to China since we are finding a significant margin of safety in owning several well-financed and well-run businesses. As the world’s second largest economy, where consumption is expanding as a share of GDP, we believe that both earnings and multiples of our Chinese holdings will re-rate favourably from depressed levels.”
According to Fidelity Asian Values’ risk matrix, which has been developed alongside FIL Investment Services, the key headwinds facing the trust remain the same as the last year end but have intensified, due to ongoing conflicts in Ukraine and the Middle East, as well as geopolitical tensions between China and the US, and China and Taiwan.
Principal risks facing the company’s portfolio are the cost of living crisis, inflation, high interest rates, the food supply crisis and the threat of cyber attacks on infrastructure. Climate change remains a key long-term headwind.
The board said: “Investors should be prepared for market fluctuations and remember that holding shares in the company should be considered to be a long-term investment.
“The investment company structure means that the portfolio managers are not required to trade to meet investor redemptions and so they are able to hold investments for a longer period.
“The manager reviews its operational resilience strategies on an ongoing basis and continues to take all reasonable steps in meeting its regulatory obligations, assess its ability to continue operating and the steps it needs to take to serve and support its clients, including the board. It has an appropriate control environment in place.”
