HEAD-TO-HEAD: Fidelity versus Matthews Asia

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Investment approach

Both the Fidelity and Matthews Asia funds invest in Asia-Pacific equities (including Japan) and exhibit different asset allocation characteristics compared to peer funds, according to Daniels.

Typically, an Apac fund would have Japan as their largest country exposure, which is similar to the MSCI AC Asia-Pacific Index. However, the Fidelity and Matthews Asia products are benchmark-agnostic products and have China accounting for the largest country allocation in their portfolios, Daniels explained.

Country allocation

Source: *fund factsheets, **Morningstar Direct. As of 30 April 2020.

The benchmark index of the Fidelity Fund is the MSCI AC Pacific Index, while the benchmark of the Matthews Asia Fund is the MSCI Asia-Pacific Index. Both indices are similar, but some countries are not included in the Pacific Index, such as India, according to Daniels.

Both products also have an all-cap approach to investing. Compared to peers, the funds invest more in small-to-mid-cap stocks.

However, one of the main differences between the two funds is how they invest in the small- to medium-cap space. The Fidelity fund has a smaller-cap bias, while the Matthews Asia fund has a preference for mid-cap stocks, according to Daniels.

Market cap exposure

Source: Morningstar Direct. As of 30 April 2020.

Daniels explained that the Fidelity fund manager believes that the micro-to-medium-cap firms are under-followed by industry participants, and as a result, would serve as attractive risk/reward bets.

When investing in companies, the manager looks at growth and quality characteristics, such as good management and cash generation. However, Daniels noted that it is not a growth fund as the manager is also conscious of valuations.

“When we met with the fund manager, we heard several times that he is not comfortable with certain valuations of particular names. So he definitely is not buying high quality companies that are expensively priced,” he said.

Turning to the Matthews Asia fund, Daniels said that the fund has a focus on companies that pay dividends. However, he noted that it is not just any company that provides dividends.

“The fund managers look for companies who are able to maintain and grow those dividends over time. So they are looking for more stable businesses, having stable free cash flows and solid balance sheets,” he said.

The differences in their investment approaches are reflected in their portfolio holdings. For example, the Fidelity fund is more diversified with around 200 stocks, while the Matthews Asia offering is more concentrated with 55-70 names, according to Daniels.

“It is not surprising for the Fidelity fund to hold around 200 stocks given that the manager invests more into the small-cap space. The manager needs to be more careful about managing liquidity, so he spreads his bets more evenly among those small- and micro-cap names,” he explained.

Top 10 holdings

Source: Fund factsheets. As of 30 April 2020.

Sector exposure

Source: Morningstar Direct. As of 30 April 2020.

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