Property related stocks have been derated with a lack of stimulus measures coming through. Consequently, holdings in building material stocks detracted from performance.
Moreover, investors were sceptical about the macroeconomic situation in China and there are concerns that the market was too optimistic on a strong bounce back in consumer sentiment. Against this backdrop, security selection in the materials and consumer discretionary sectors detracted from returns. Encouragingly, an overweight stance and security selection in information technology (IT) stocks, the best performing sector over the quarter, contributed to performance. Holdings in paint manufacturer, SKSHU Paint, and building materials group, Beijing Oriental Yuhong, detracted from relative returns. Both companies are expected to gain from industry consolidation as competitors have failed in the property downcycle, which points to improving margins.
Overall, the property sector is undergoing significant change as weaker players are exiting the market and those that survive have gained market share, which will translate into better margins in the future. Shares in Chinese consumption-led companies slid amid a market wide sell-off. Positions in Yum China, the operator of Pizza Hut and KFC restaurants in China, and premium liquor producer Kweichow Moutai, retreated. The long-term thesis for these stocks remains intact. Shares in advertising company Focus Media Information Technology also ended the quarter lower. Encouragingly, its business is witnessing consistent improvement and its clients are likely to increase marketing spending to rebuild brand equity once business conditions normalise. The exposure to semiconductor names including SK Hynix, ASML Holding and Taiwan Semiconductor Manufacturing (TSMC) supported performance. Optimism around increasing demand for AI chips and a sooner-thanexpected recovery in the overall chip industry buoyed investor sentiment. Investor sentiment was buoyed around the possible synergies post the merger of Housing Development Finance Corporation (HDFC) with HDFC Bank in July. The merger will create a stronger financial entity by leveraging their strengths. The merged entity will have a broader product portfolio and an enhanced market presence.
What is Fidelity Asia Fidelity Asia is an Managed Funds investment product that is benchmarked against World Emerging Markets Index and sits inside the Foreign Equity - Asia ex Jap Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Fidelity Asia has Assets Under Management of 762.63 M with a management fee of 1.15%, a performance fee of 0.00% and a buy/sell spread fee of 0.8%.
How has the investment product performed recently? The recent investment performance of the investment product shows that the Fidelity Asia has returned 8.82% in the last month. The previous three years have returned 1.2% annualised and 13.63% each year since inception, which is when the Fidelity Asia first started.
How is risk measured in this investment product? There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Fidelity Asia first started, the Sharpe ratio is NA with an annualised volatility of 13.63%. The maximum drawdown of the investment product in the last 12 months is -4.61% and -39.01% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product? Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Fidelity Asia has a 12-month excess return when compared to the Foreign Equity - Asia ex Jap Index of -4.38% and 0.5% since inception.
Does the investment product produce Alpha over its Peers? Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Fidelity Asia has produced Alpha over the Foreign Equity - Asia ex Jap Index of NA% in the last 12 months and NA% since inception.
What are similar investment products? For a full list of investment products in the Foreign Equity - Asia ex Jap Index category, you can click here for the Peer Investment Report.
What level of diversification will Fidelity Asia provide? Fidelity Asia has a correlation coefficient of 0.91 and a beta of 0.92 when compared to the Foreign Equity - Asia ex Jap Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers? For a full quantitative report on Fidelity Asia and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Fidelity Asia with the World Emerging Markets Index? For a full quantitative report on Fidelity Asia compared to the World Emerging Markets Index, you can click here.
Can I sort and compare the Fidelity Asia to do my own analysis? To sort and compare the Fidelity Asia financial metrics, please refer to the table above.
Has the Fidelity Asia been independently verified by SMSF Mate? This investment product is in the process of being independently verified by SMSF Mate. Once we have verified the investment product, you will be able to find more information here.
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Comments from SMSF Mates SMSF Mate does not receive commissions or kickbacks from the Fidelity Asia. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - March 31, 2023 A slowdown in the semiconductor sector in the first half of 2023 appears to be priced in and investors are looking forward to a recovery in the second half of the year. Shares in ASML Holding, a key supplier to the sector advanced amid a market-wide rally. In addition, ASML reported solid sequential growth in terms of both earnings and sales.
The company makes advanced lithography equipment for etching small circuits on semiconductors. It is the sole supplier of nextgeneration extreme ultraviolet chip technology to the semiconductor industry, which gives it a competitive advantage. MediaTek’s proposal to issue an encouraging cash dividend and TSMC’s announcement that it had left its firstquarter sales forecast unchanged boosted investor sentiment. MediaTek maintains a strong leadership position as a mobile systemon-chip provider. TSMC offers long-term structural growth within semiconductors and is a front-runner with cutting edge technology.
Meanwhile, news that South Korea and Japan agreed to resolve a trade dispute that has weighed on the Korean semiconductor industry for more than three years boosted the position in SK Hynix. The exposure to China Merchants Energy Shipping enhanced gains. It primarily operates in tankers, dry bulk and LNG ships. It is expected to gain from a recovery in demand for oil, especially with an improvement in air and road traffic as COVID-19 led restrictions ease. The position in HDFC Bank slid amid a market-wide sell off in Indian equities. However, the bank offers a long runway for growth. It has a robust deposit franchise, solid asset quality and is a good business that stacks up very well versus other regional banks. The exposure to BOC Aviation detracted from returns amid rising concern about in the timing of new aircraft supply, higher financing costs and recession risk in developed markets. Nonetheless, it is expected to benefit from the resumption of air travel in China and the Asia-Pacific market; as the aviation industry continues to recover towards 2019 levels. Elsewhere, the lack of exposure to Tencent and Alibaba weighed on relative returns. The former gained from encouraging returns and easing regulatory headwinds. Shares in the latter rose on news that it will split into six business segments. The restructuring could lead to multiple initial public offerings, which lifted investor sentiment.
Performance Commentary - January 31, 2023 The Fund outperformed the index over the month. Speculation that the US Federal Reserve (Fed) is nearing the end of its aggressive interest rate hike cycle along with broad optimism in the region due to China’s reopening spurred a comeback for technology-led positions after these stocks slid over most of 2022.
Positions in the IT sector, notably semiconductor names, advanced strongly as concerns over a slowdown receded. Shares in ASML Holding, a key supplier to computer chip makers, chipmaker SK Hynix and semiconductor manufacturers MediaTek and Taiwan Semiconductor Manufacturing Company advanced amid a market wide rally. In addition, ASML reported solid sequential growth in terms of both earnings and sales and issued a robust revenue outlook for 2023. Overall, the longterm sector tailwinds for these holdings remains strong, amid a shift towards semiconductor-intensive areas such as highpowered computing, electric vehicles and artificial intelligence. The exposure to power tools company Techtronic Industries contributed to relative returns.
The company has a strong correlation with the US housing market, which is driven by interest rates.
Indications that the interest rate cycle in the US may be peaking buoyed its share price. Techtronic is also a high-quality company that is moving up the value chain and gaining market share with its battery-operated cordless power tool products. Its Milwaukee brand also continues to see growth.
Meanwhile, investors are optimistic on policy support measures taken by Chinese authorities to aid the property market. Companies affiliated to the real estate sector, including building materials group Beijing Oriental Yuhong and paint manufacturer SKSHU Paint rose. Both companies reported strong operating cash flows and are expected to gain from industry consolidation as their competitors have failed in the property downcycle, which points to improving margins.
Conversely, the position in India’s private lender HDFC Bank slid amid a market wide sell off in Indian equities. However, HDFC Bank offers a long runway for growth. It has a robust deposit franchise, solid asset quality and is a good business that stacks up very well versus other regional banks. Investors took profits in insurer AIA Group following a strong rally in its share price recently.
Nonetheless, with a differentiated business strategy and proven track record in its management and execution, AIA is well positioned to embrace the development of the Chinese and other Asian insurance markets in the long run. The position in BOC Aviation detracted from returns as investors took profits post its strong outperformance in recent months amid rising concerns about uncertain new aircraft supply, rising financing costs and recession risk in the West. Nonetheless, the company is expected to benefit from the resumption of air travel in China and the AsiaPacific market; the aviation industry could continue to recover towards 2019 levels.
Elsewhere, the lack of exposure to ecommerce giant Alibaba Group weighed on relative performance as its shares rose on the back of easing regulatory headwinds in the Chinese internet space.
Performance Commentary - December 31, 2022 nvestors recognised the extremely discounted valuations on Chinese stocks, which suffered on account of negative sentiment and are now seeing a revival in investor confidence amid relaxation of Covid-19 control measures. As a result, positions in Trip.com and BOC Aviation advanced on expectations of a resumption in international travel demand. Shares in Focus Media Information Technology also attracted investor interest following a sell-off in recent months and an improving economic outlook.
The company announced a special dividend, highlighting management’s commitment towards its shareholders and once business activity picks up steam and its clients increase their marketing spending, it will likely gain from the high utilisation rate of its network of screens. The company has expanded its customer base and is providing better services at higher average selling prices. The re-opening of the border between China and Hong Kong also boded well for investor sentiment towards AIA Group, on expectations of business expansion in China and the return of cross border insurance product sales for mainland visitors in Hong Kong. With a differentiated business strategy and proven track record in its management and execution, AIA is well positioned to embrace the development of the Chinese and other Asian insurance markets in the long run. The position in Kweichow Moutai detracted from returns.
The recent Chinese Communist Party’s leadership reshuffle triggered concerns over the potential impact that the country’s common prosperity goals would have on luxury products such as high-end baijiu. A consumption slowdown and a flare-up in Covid-19 cases also weighed on near-term investor confidence towards Moutai.
Nonetheless, the market appears to have priced in the overly negative sentiment with no imminent catalyst. Bafang Electric Suzhou growth stalled amid Covid-19-led lockdowns and weaker demand for electric bikes in the US and Europe. Bafang highlights efficient cash flow management, and the position is retained as it aims to take a significant share of the Chinese e-scooter market and is also pursuing the high-end electric motorcycle business. The holding in China Merchants Energy Shipping held back gains on the back of weak returns from its dry bulk and container segments.
Lockdowns in China, an economic slowdown across the world and the disruption of grain trade in Ukraine and the US led to a decline in freight rates/demand for major and minor bulks. Companies affiliated to the real estate sector, including Beijing Oriental Yuhong and SKSHU Paint gained. Both companies are expected to gain from industry consolidation as competitors have folded in the property downcycle, which points to improving pricing power. The position in HDFC Bank contributed to returns as it reported healthy business growth led by strong traction in commercial and rural banking. The bank maintains a healthy asset quality with a sequential decline in slippages and healthy recoveries and continues to offer superior returns compared to its peers. Investor sentiment was buoyed by the news that following the merger with Housing Development Finance Corporation. HDFC Bank will be considered as an extension of the former according to the new MSCI rules and would effectively increase the weightage of HDFC Bank sharply in the MSCI global index, removing the overweight problem of foreign institutional investors, which was a technical overhang. ASML delivered upbeat results amid strong booking numbers. Its management is optimistic about a capacity ramp-up and margin improvement in 2023.
ASML has tremendous pricing power and growth prospects, given that it is a monopoly supplier of extreme ultraviolet (EUV) machines, which is critical equipment for leading-edge chip manufacturing that is seeing structural growth trends against the backdrop of increased digital penetration. Furthermore, the company is well positioned and stands to benefit as logic/foundry competition is likely to drive capital expenditure growth and as memory spending increases.
Performance Commentary - September 30, 2022 Property-related positions held back gains The allocation to property-related names, including building materials group Beijing Oriental Yuhong and paint manufacturer SKSHU Paint, detracted from returns. Beijing Oriental delivered subdued results due to higher raw material costs. SKSHU Paint reported mixed results, as growth in its business-to-consumer (B2C) segment was offset by a downturn in its business-to-business (B2B) operations. Investors are concerned over the build-up of accounts receivable on the balance sheets of both companies. Nonetheless, these companies are expected to gain from industry consolidation as competitors have folded in the property downcycle, which points to improving pricing power – an important factor as commodity prices fall and product price hikes have stuck.
Market sentiment weighed on consumer names The recent COVID-19 resurgence in some regions of China led to subdued discretionary spending and an overall reduction in demand. Against this backdrop, despite reporting encouraging profits and a notable increase in revenue from the property sector, Focus Media Information Technology, an operator of indoor advertising, held back gains. Nonetheless, we believe the company’s structural growth story remains intact. It has a capital-light business and strong profitability, and the underlying quality of its business is likely improving due to lower dependency on bigger customers. Elsewhere, shares in Bafang Electric Suzhou, a manufacturer of powertrains for electric bikes, retreated. The company’s growth stalled amid COVID-19-led lockdowns and weaker demand for electric bikes in the US and Europe. The position is retained as the company aims to take a significant share of the Chinese e-scooter market and is also pursuing the high-end electric motorcycle business.
Performance Commentary - June 30, 2022 The Fund returned 3.8%, while the index returned -0.6% over the quarter. A significant proportion of the outperformance was driven by positions in China. Expectations of a pickup in demand on the back of policy support, and improving sentiment amid easing Covid restrictions, proved rewarding for selected stocks.
Performance Commentary - December 31, 2021 Long-term growth prospects attracted investor interest Shares in Focus Media Information Technology, China’s largest operator of indoor advertising, benefited from sector rotation. The stock had been trading at undemanding valuations and is expected to gain from the high utilisation rate of its network of screens. The exposure to semiconductor chipmaker SK Hynix lifted performance. Investor sentiment is supportive of its structural growth prospects and a pickup in demand for memory chips.
Taiwanese semiconductor company MediaTek gained amid increasing market share, strong sales prospects and optimism around the launch of its new mobile chip that supports 5G technology. More recently, it has announced device maker adoption and endorsement from major smartphone manufacturers. Elsewhere, the holding in China’s baijiu producer Kweichow Moutai added value. Investor sentiment was buoyed by the appointment of a new chairman who pledged a series of longterm reforms, as well as improved marketing and pricing. Its share price was further supported by expectations of an ex-factory price hike for its premium liquor Moutai. Policy easing supported property related stocks Over the year, the Chinese property sector faced headwinds from regulatory and credit tightening.
As a property-market downturn threatened to hamper GDP growth in 2022, China’s policy makers moved to expand support. Over the quarter, news of regulatory issues appears to have abated and a Chinese central bank rate cut was welcomed by investors, supporting the share price of property related companies. Consequently, positions in building materials group Beijing Oriental Yuhong and paint manufacturer SKSHU Paint added value.
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