Page 22 - DIY Investor Magazine | Issue 30

‘LAID THE FOUNDATION FOR A RESURGENCE POST- CRISIS WITH STRONG ABSOLUTE AND RELATIVE RETURNS’
However, like with many journeys, it hasn’t been all smooth sailing. Straight after the trust’s launch, the Asian economy
hit a substantial speed bump with the Asian Financial Crises, which derailed the fundamentals of many companies. Between August 1997 and August 1998, the trust declined by 70%, with the share price hitting a low of 33p against a launch price of 100p in just over two years.
Over the next five years, the world stumbled from one accident to the next - first, a stock market boom and then a crash
led by shares in ‘new economy companies’ followed by the September 11 terrorist attacks in United States in 2001 and finally the SARS epidemic in Asia in 2002/2003. The stock price of the trust was 40p as of 31 March 2003. It is fair to say that it was a difficult start for the trust.
During these turbulent times the trust undertook two portfolio manager changes, culminating in John Lo being appointed as manager in September 2001. John expanded the investment remit across Asia to include India, China, Taiwan as well
as Australia and New Zealand. He also took a more active interest in mid-cap opportunities thus expanding the investable universe of the trust.’
THE BOOM, THE BUST AND THE GREAT RECOVERY
The recession in the wake of the triple-hit of the technology bubble busting, 9/11 and the SARS virus outbreak was followed by an equally unprecedented economic and stock market up cycle. This was the period which started to see China take centre-stage. It was also a time marked by a surge in commodity prices, strengthening Asian stock markets and rising global house prices.
From an asset allocation perspective, it was a period where Asian stock markets became mainstream and a core holding in portfolios. The share price of the trust and shares in Asian markets did well during this time frame, appreciating by almost 400%. By October of 2007, Asian Values was trading at 170p a share. The period between 2003 to 2007 was also a period of heavy investment by Fidelity in Asia, with our research resources expanded considerably to keep up with the growing number of companies being listed in the region.
Research presence was built in Seoul, Mumbai, Singapore and Shanghai in addition to existing bases in Hong Kong, Sydney and Tokyo.
However, around this time the housing bubble in the US
was starting to deflate, leading to significant bank failures in America - the catalyst of the Global Financial Crisis. Asia was not immune to this crisis and experienced a significant decline in corporate profitability. The market gave up most of the gains from the bottom in 2003 and trust was trading at 73p after the collapse of Lehman Brothers.
John Lo’s talent for spotting recovery stocks, aided by our depth of research, laid the foundation for a resurgence post- crisis with strong absolute and relative returns until March 2015 when John stepped down as portfolio manager.
The NAV and share price of the trust had increased to 295p and 263p respectively by March 2015.
THE SHIFT TO ‘SMALL CAP-VALUE’
Although the trust performance was satisfactory, the board, under the stewardship of Kate Bolsover, decided to move to
a small-cap strategy with a view to better access the large pool of smaller businesses listed across Asia, while also better utilising the trust’s closed-ended structure. Given my bias towards small-cap value investing, it was a logical step for me to take over running the trust in April 2015.
Notably, over the first 20 years of the trust’s existence, small- cap value had outperformed all other styles in Asia. The board felt that this would be an interesting route to take given Fidelity’s research depth and my investment style.
After an initial three-month transition period, the trust was moved to a portfolio of high-quality small cap stocks which were either ignored by the broader market or yet to be discovered.
This has resulted in a period of strong relative and absolute returns over the last six years, despite the fact that this
has been a period where value as an investment style has struggled to keep up with more growth-oriented stocks and sectors.
‘A PERIOD OF STRONG RELATIVE AND ABSOLUTE RETURNS OVER THE LAST SIX YEARS’
DIY Investor Magazine | Sept 2021 22