Jochen Breuer, Portfolio Manager, Fidelity Asian Dividend Fund, explains how to make the best of Asia's maturing equity markets
Asia has typically been viewed as an investment destination for those seeking growth and willing to accept higher bouts of volatility. Over the last few years we have seen significant dividend policy developments for Asian companies, driven by a combination of investor demand, regulatory change and more disciplined capital allocation by companies as they mature. Whilst growth is still a key goal for Asian companies, management are rewarding shareholders via increasing dividends and buybacks.
This is generally supported by a more progressive regulatory environment. For example, in China we are generally seeing improving dividend pay-outs, especially by the state-owned enterprises. Another example is in Korea, where companies face tax penalties for sitting on too much cash and tax incentives for putting this cash to work for shareholders. As a result, we have seen superior dividend growth in Asia versus other markets in recent years.
Lessons from 1997
Crucially, dividends are supported by strong balance sheets, which can be traced back to the 1997 Asia financial crisis. During this period companies learned a hard lesson in what happens if you do not allocate capital correctly and borrow for domestic ventures in foreign currency. Consequently, Asian companies now enjoy some of the most solid and stable balance sheets in the world, creating a strong foundation for dividend pay-outs.
The Fidelity Asian Dividend Fund aims to provide investors with a dividend-based total return, whereby they enjoy capital growth driven by the attractive structural investment opportunities in Asia, but via some of the region's most sound companies with developed capital allocation policies.
As a result, investors should expect lower volatility and drawdown relative to the broader market. The fund also aims to provide investors with an attractive yield and an underlying dividend that grows above the rate of inflation.
We concentrate the portfolio into approximately 40 names and construct it with no reference to an underlying index. I aim to hold position sizes of 1% - 5% based on factors such as downside risk, company fundamentals, liquidity and dividends. All of this is managed with a strict valuation framework that looks to widen the margin of safety for the underlying holdings in the portfolio.
Important Information: This information is for investment professionals only and should not be relied upon by private investors. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. Fidelity's range of Asian equity funds have the potential of having high volatility either from their composition or the techniques used to manage them. The funds can use financial derivatives which may expose them to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Investments in small and emerging markets can be more volatile than other more developed markets. Changes in currency exchange rates may affect the value of investments in overseas markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Investments in Fidelity funds should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document, current annual and semi-annual reports free of charge on request by calling 0800 368 1732. Issued by FIL Pensions Management, authorised and regulated by the Financial Conduct Authority and Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0419/23974/SSO/NA