HEAD-TO-HEAD: Fidelity versus First State

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Investment process

Both the Fidelity and First State funds invest in Greater China equity markets, with both having a growth style bias. However, both funds are different in terms of how they define growth, according to Share.

The Fidelity Fund has a flexible interpretation of growth. When thinking about growth stocks, Raymond Ma, the lead portfolio manager of the fund, classifies them into four buckets, which are turnaround growth, high growth, sustainable growth and underappreciated growth.

“If you think about turnaround and underappreciated growth, it could be stocks that are very beaten down right now that the market hasn’t recognised yet. So that’s not the very traditional tech stock kind of growth interpretation,” Share explained.

The portfolio also has some energy stocks, which are not usually associated with being in the growth sector.

Turning to the First State fund, Share said that it has a focus on quality.

“When we spoke to portfolio manager Martin Lau at our previous reviews, he said his favourite search when he conducts company research is to type in the company name and add ‘scandal’ after the name,” she said.

“That shows you that qualitative factors, such as management track record and corporate governance are very important factors in the fund.”

There are also differences in terms of portfolio concentration. The Fidelity fund is more diversified with 120 names, while the First State fund is concentrated with just 50 stocks.

Share added that the Fidelity fund has a “very long tail”, which means that it has tiny positions of 50 bps or less that makes up more than half of the portfolio.

“One of the reasons is the portfolio manager may incubate smaller cap ideas, and because they tend to be less liquid, he sizes it at a smaller position. It also might be a case of incubating some ideas that he is slowly building, or he might be on the way out of some stocks and is slowly trimming them down.”

Share added that the Fidelity fund is more benchmark-aware, with an active share of 45% relative to its benchmark index, the MSCI Golden Dragon Index. The First State fund, which follows the same index, has an active share of 70%.

“The First State fund is much more of a high conviction benchmark-agnostic portfolio, and you would see these chunky bets in the portfolio.”

The First State fund also has a very long-term investment horizon, with a portfolio turnover of 10-20%.

“That’s not to say that the Fidelity fund has a very high turnover. It’s been around 50%, so you can say that the holding period is around two years,” she noted.

Sector allocation (%)

Source: Morningstar

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