HEAD-TO-HEAD: Fidelity vs Haitong

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Investment approach

Both of the funds aim to identify bonds with credit ratings that have reasonable potential to improve. Roughly half of the Asia bond universe is comprised of China issuance, which is dominated by Chinese property bonds (~40%).

Faced with this rather restricted and lopsided investment environment, the Fidelity and Haitong funds adopt substantially different strategies, said Ng.

“Fidelity doesn’t take a market-weighted approach. Instead, it limits its China property exposure to around 20% to reduce concentration risk,” he said.

Creating a balanced portfolio is important to the Fidelity managers, who are led by Bryan Collins. They follow a process they call “MASTR” to achieve this objective.

The process encompasses:  market (macroeconomic analysis), allocation (top-down sectors), selection (bottom-up analysis), transaction (price and liquidity) and risk (balance and diversification).

In contrast, Haitong shows little constraint either about its exposure to China or in taking an overweight position in the property sector. Over three-quarters of the fund’s assets are allocated to real estate, and almost 85% to mainland China, with the rest invested in bonds issued by Hong Kong and Macau companies.

Ng admits that there is little information available about the Haitong investment process, but points out that the firm has deep roots in China and hence extensive contacts and points of access that should assist in decision-making.

The fund’s big bet on the China property sector means that it can advertise a much higher income yield than the Fidelity fund: 9.7% compared with 5.9%, said Ng. However, there is a danger that the headline yield is partly due to the 6.78% decline in NAV last year.

Source: FE Analytics (US dollars to 14 February 2019)

Market Exposure:

Sector Weightings (31 December 2018)

Source: *FE Analytics; **Haitong

Bond Credit Quality (31 December 2018)

Source: *FE Analytics; **Haitong

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