HEAD-TO-HEAD: Fidelity versus FSSA

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Investment approach

Both strategies are based on stock selection, but the FSSA manager is typically more stringent about quality criteria, according to Lo.

“The FSSA portfolio also tends to diverge more from its benchmark than the Fidelity allocations,” he said.

Amit Goel took over Fidelity fund in February 2020 and has since been adapting the same quality-growth approach that he successfully used in managing Asian equities to this Indian equity strategy.

“He looks for high-quality companies with market leadership, structural growth potential, strong brands, superior technology, scale advantages, and sustainable high return on capital,” said Lo.

“However, while Goel claims to have a bigger quality focus than his predecessor, more time is needed to see how this materialises in the portfolio,” he added.

Nevertheless, given Goel’s greater focus on large-caps, the portfolio’s average market cap has edged up and he has also improved the portfolio’s liquidity profile by exiting some smaller and illiquid names.

While the strategy is managed in a benchmark-aware manner against an 8% capped MSCI India index, Goel is more willing to take active bets, and active share has increased from about 40% to 50% relative to the MSCI India index, although it was at the lower end of his 50%-70% target as the Indian market proved more concentrated than he expected, according to Lo.

Although he maintains a slight underweight in Indian stock market leader Reliance Industries, Goel has no significant overweight positions (that is, above 5%), despite his declared intention to raise the active share of the portfolio.

Similarly, while he had planned to reduce the number of holdings to 30-40 from 50-70, the portfolio still has about 50 names.

“Goel is still fine-tuning his approach for this single-country mandate,” said Lo.

In contrast the FSSA strategy has a “time-tested investment approach and an unwavering team commitment to it across market cycles,” according to Lo.

“The team led by Vinay Agarwal has successfully employed a bottom-up, conviction-driven, absolute-return approach for more than two decades, where it looks for high-quality companies with long-term growth prospects,’ he said.

The quality of the company founders or management teams is of primary importance, and they must have a track record of integrity, effective capital allocation and long-term orientation.

“The business must also possess a strong franchise that can deliver sustainable and predictable returns well in excess of the cost of capital and a strong balance sheet,” said Lo.

While the team does not build detailed financial models, it looks at a broad range of valuation metrics such as price/sales, EV/Ebitda, price/cash flow, price/earnings, and price/book.

“Overall, this process is less price-sensitive than others in this space, and the team is ready to pay up for companies that meet its stringent quality criteria,” said Lo.

The portfolio is relatively concentrated with 40-50 stocks and has consistently maintained a high active share of around 80% relative to the MSCI India index, in line with the benchmark-agnostic approach.

Current overweight allocations include the consumer and industrials sectors, and the portfolio is underweight information technology stocks, and has avoided Reliance Industries because of concerns about its quality – which has hurt the fund’s performance in recent years.

Fund characteristics

Sector allocation:

Source: Fund factsheets, 30 Apr 2021

Top 10 holdings:

Source: Fund factsheets, FE Fundinfo: *30 Apr 2021, **31 May 2021

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