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Where Fund Managers Are Parking Their Money – Part 2
Perspective | 21 March 2014
By: Shane Goh
Articles (99) Profile

To better understand how fund managers view the asset class, Shares Investment had the privilege to catch up with one of Morningstar award winners, Dale Nicholls, portfolio manager of Fidelity Funds – Pacific Fund.

Dale Nicholls, Portfolio Manager, Fidelity Worldwide Investment

Shares Investment: What is the investment style of Fidelity Worldwide Investment when approaching equities?

Dale: The foundation of Fidelity’s investment process lies in our independent, broad-based coverage of our fundamental research. From thereon, portfolio managers have the flexibility to manage their portfolios in their own individual styles as there is no “house view” and no house-wide “buy” and “sell” lists imposed on our portfolio managers.

SI: What is one key factor that provides Fidelity’s its competitive advantage?

D: Fidelity operates one of the largest investment research teams with about 400 investment professionals worldwide, with a focus on bottom-up fundamental research.

SI: For the Fidelity Funds – Pacific Fund, what are some of your criteria and due diligence you undertake when selecting a company?

D: Stock selection remains the fundamental driver to performance and I continue to look for companies that offer the best value relative to their respective long-term growth prospects, returns on capital, and management quality. When assessing a company, I focus on understanding how each of these factors will change over time.

I tend to have a small- to mid-cap bias as there are more under-researched stocks in this category whose potential value has yet to be fully recognised by the market. As we approach a more uncertain outlook for the Pacific region, I believe that it is even more important to meet the company and scrutinise the robustness of the business model. We remain committed to digging deeper and gaining a better understanding of the companies and their operating environment.

SI: What is your economic outlook for 2014 specific to the markets you cover and how are you positioned to take advantage of opportunities and/or mitigate potential risks?

D: I believe that Asia still has great growth potential and the medium to long-term prospects are exciting. I have been investing in the Pacific region for more than 10 years and the current environment is one of the most interesting that I have witnessed. There are numerous moving parts across the region from the Abenomics initiative in Japan, reforms in China, the rapid pace of development in the ASEAN nations and increasing strength of global brands in Korea.

China is the powerhouse of Asia and what happens here dictates the tone for the rest of the region. In terms of the macro environment I believe it will be a challenge for the government to be able to maintain a 7.5 percent gross domestic product (GDP) growth rate while simultaneously tightening monetary policy, so I expect there to be an ongoing “give and take” approach to these two policies. The speed at which debt levels have risen and the implications this may have for credit quality are the top areas of concern for me.

I will be closely following how the government deals with these problems, particularly in the wealth management and trust product areas. I also think the regulatory concerns surrounding US-listed Chinese names needs to be monitored, although I think this will likely be resolved over time.

Despite these concerns, I think there are abundant investment opportunities in China and it is the area where I still find the most opportunity. The potential impact of the reforms announced in November’s third plenary should be strong tailwinds for the large majority of “new” China, which represents most of the companies I own. Also, even if GDP growth were to fall to the region of 6 percent, I still find this to be an enviable rate of growth in a global context.

The ASEAN region has an exceptional long-term structural growth story and I have no doubt these markets will reward investors over time. The trend of infrastructure investment, industrialisation, urbanisation and the subsequent increase in wealth and income are strong structural trends, and there are many companies who can take advantage of this. That said, each country faces its own distinct challenges.

The political crisis in Thailand is a major headwind and until this is resolved it will be very difficult to make a sound investment decision there. The Philippines is achieving strong economic growth, but I find it relatively hard to find companies with compelling valuations; this is also the case in Malaysia.

However, I find a number of strong structural stories in Indonesia making it my biggest overweight in the ASEAN region. I am pleased to see some improvement in its fiscal and current account deficits, but I will be monitoring the upcoming elections.

Currently pursuing his Chartered Financial Analyst qualification, Shane provides coverage on the property, consumer and environmental sectors at Shares Investment.

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