HEAD-TO-HEAD: Fidelity versus Stewart

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Conclusion

Morningstar has awarded the Fidelity fund a silver analyst rating and a five-star (historical) score. The Stewart fund also gets an analyst rating of silver, but with only four stars.

The analyst rating is based on forward-looking factors which derive from Morningstar’s assessment of five key “pillars” it believes are critical for a fund’s future success, namely: people, parent, process, performance, and price.

FE Analytics, which bases its crown ratings on the more backward-looking criteria of alpha, volatility and consistency, also rates the Fidelity fund higher, awarding it three crowns (out of five) and the Stewart fund only one crown.

Daniels believes both funds are “very strong options for investors”, hence the silver analyst ratings.

“They should outperform the benchmark index over the full market cycle, but in different ways. Investors’ preference should be guided by their level of risk tolerance,” he said.

Conservative-minded investors should be attracted by the downside protection offered by the Stewart fund, which has a tighter focus on valuations, while investors who are more capital growth-oriented might consider the Fidelity fund, according to Daniels.

Price’s high weighting to China, in contrast to Swarup’s almost total lack of exposure perhaps best reflects the difference in approaches.

On balance, Daniel tilts towards the Stewart fund which, he believes, should cope better in choppy markets.

In addition, “I have more conviction about Stewart’s investment process, although questions remain about the longer-term effects of the demerger with First State Stewart Asia four years ago,” said Daniels.

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