HEAD-TO-HEAD: Fidelity vs First State

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Both funds follow a bottom-up stock-picking approach. “It’s all about finding great individual names,” said Laidlaw.

The Fidelity fund follows the MSCI India Capped 8% Index as a benchmark, but has an active share of 50%. “While Kothari prefers high-quality companies with reasonable trading liquidity, he has been willing to add small- and mid-cap exposure when the investment case stacks up,” according to Laidlaw. The fund holds 50-70 names and has a low turnover of around 20% on average.

In comparison, the First State fund is benchmark-agnostic, committed to preservation of capital and to delivering absolute returns. In the team’s bottom-up research approach, “heavy emphasis is placed on company visits and members of the investment team make multiple trips to the country in any given year”, according to Laidlaw. The portfolio is more concentrated than Fidelity’s. It holds less than 50 names, many of them outside the category index, resulting in a high tracking error.

Both fund managers “have a strong focus on corporate governance and management”, said Laidlaw. It is particularly important in the Indian market where family-owned companies are prevalent. The way the owners treat minority shareholders, especially during market stress, is a crucial part of analysis.

“First State’s Vinay Agarwal has a flexible approach when it comes to valuation,” notes Laidlaw. “He is happy to add to a consumer-related name that looks expensive on an absolute basis, if he believes in the long-term growth story.”

“First State tends to be historically a bit more conservative in their positioning,” said Laidlaw. They have a stronger focus in the consumer defensive space (23.3% in April, compared to Fidelity’s 9.5%) and tend to avoid sensitive sectors, in particular energy.

The Fidelity fund, however, “has a bit more of a quality and growth angle to it,” said Laidlaw. Fidelity’s Kothari “is more willing to play with cyclicality, whereas First State’s team doesn’t get excited looking at some of the more cyclical names,” he said.

Nevertheless, both funds allocated almost half of their portfolio to cyclical stocks as of 30 April. Fidelity had 48.5%, with an emphasis on consumer cyclicals and financial services, while First State had 45.8%, with higher allocations to basic materials and real estate.

The First State fund can also invest outside India, in Bangladesh, Pakistan and Sri Lanka. As of 30 April, the allocation to these countries was 4.1%.

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