HEAD-TO-HEAD: Fidelity vs UBS

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Both funds, which are Luxembourg-domiciled, invest in offshore China equities (companies listed outside mainland China), with both of their managers employing a bottom-up approach. However, the main difference between their investment strategies is the focus – one has a bias toward value, while the other prefers growth.

Jing Ning, Fidelity’s Hong Kong-based portfolio manager for the China focus fund, has a more value-oriented approach to investing, according to Liang. Ning looks for out-of-favour names that are trading below their intrinsic value and have turnaround potential. She starts with assessing the business cycle and seeks to identify names that are currently disregarded by the market because of macro-economic or company-specific reasons.

“If you look at her portfolio, you will find that it has a price-to-book and price-to-earnings level that is consistently lower than the MSCI China Index,” Liang said.

Liang noted that Ning is not a “deep-value” but more of a “relative value” manager, adding that she would still look at cyclical stocks and quality.

Bin Shi, UBS’ Hong Kong-based portfolio manager for the China opportunity fund, uses a growth discipline to build his portfolio. He identifies industries that he believes would benefit from China’s structural growth trend and are under-represented in the MSCI China Index.

Benchmark adoption is also different between the two funds. The Fidelity fund’s benchmark is the MSCI China Capped 10% Index, with Ning adopting a benchmark-aware approach in portfolio construction. The fund has a soft limit of +/-3% for individual stock positions and a +/-10% for sector allocation, according to Liang.

The Fidelity fund is diversified, with around 75 names in the portfolio, she added.

The UBS fund’s benchmark is the MSCI China Index. Unlike Fidelity’s Ning, Shi is benchmark agnostic, having a more concentrated portfolio of around 55 names, Liang said.

Both indices measure the performance of offshore China equities. The only difference is that the MSCI China 10% Capped Index has some weighting constraints that are subject to regulations.

The differences in their investment strategies explain why their portfolios look different.

For example, the Fidelity fund has more large-cap companies in its portfolio than the UBS fund.

“UBS’ Shi likes to identify what he calls ‘the next Tencent’, be it in technology, healthcare and others, so he enjoys investing in small- and mid-cap stocks because he looks for the long-term potential of these companies.”

Source: Morningstar

Their sector allocations are also very different.

On one hand, the Fidelity fund is consistently overweight value companies, which are usually found in the energy, materials and banking sectors, and is also consistently underweight in richly-valued sectors such as information technology, according to Liang.

The UBS fund, however, gravitates toward growth-focused sectors, such as healthcare, consumer discretionary and information technology.

Source: Morningstar

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