I have a simple investment philosophy: buy good businesses run by competent and honest people, and buy them at a price that leaves enough of a margin of safety for mistakes or bad luck. I try to buy companies that other people are not looking at. That is where I find bargains and an adequate margin of safety. This process tends to lead me away from big stocks.
As a result, Fidelity Asian Values has most of its capital deployed in small companies (those with a market capitalisation of up to £5bn); stocks above that threshold only make up about 20% of the trust’s holdings. The trust also has a value bias given my focus on companies that are mispriced, either because they are yet to be discovered by investors or are currently undervalued owing to near-term concerns.
With value-investing out of favour, the current market offers unprecedented opportunities to invest in good companies at competitive prices, while demanding patience in the near-term. Several stocks in our portfolio, despite delivering good operating performances and being undervalued, have not appreciated, as a narrow group of stocks in a few sectors have carried the market.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
But our stocks’ long-term prospects remain promising. If investors can find businesses capable of growing revenues while earning high returns on capital, and purchase them at an attractive price, they will go a long way towards attaining their financial objectives.
A profitable power player
Among the stocks being ignored by a market focusing on growth stocks is Power Grid Corporation of India (Mumbai: POWERGRID), one of our largest holdings. Power Grid is a high-quality, regulated monopoly for electricity transmission in India and has an enviable track record of growth, stability and return on equity (a key gauge of profitability). The stock is trading on less than eight times earnings, yields 6% and will grow profits this year, despite Covid-19. Irrespective of its strong fundamentals, the stock has been sold off owing to the pandemic.
Financial stocks you can bank on
Similarly, high-quality private-sector banks in India have underperformed so far this year and trade at appealing valuations. HDFC Bank (Mumbai: HDFCBANK), the largest private-sector bank in India, is one of the trust’s top holdings.
It has an impeccable track record of consistently delivering growth superior to the rest of the industry and has maintained the best asset quality among banks across several economic cycles. It has an excellent management team, strong systems and processes, and enjoys a low cost of funds. Another key holding, Axis Bank (Mumbai: AXISBANK) is India’s third-largest private sector bank. It has one of the best liability franchises in the country and only HDFC Bank boasts a lower cost of funds. Its ratio of current accounts to savings accounts (Casa), another way to gauge banks’ costs and profitability, is slightly better than HDFC Bank’s.
It also has one of the best returns on assets in the industry. These banks will come out of this challenging operating environment in a stronger position than their peers, particularly the inefficient government-owned banks, and gain market share in the process.
-
Where are ISA savers and investors putting their money?With less than three months until the end of the tax year, where are ISA savers and investors putting their money? We look at the latest ISA trends.
-
More than £53 billion held in fixed-rate cash ISAs will mature by April - where should savers move their money?If your fixed-rate cash ISA is maturing soon, we look at the options available to you
-
Why Wise could be worth a lot more than its share price impliesForeign-exchange transfer service Wise has the potential to become the Amazon of its sector – here's why you should consider buying this stock now
-
Can The Gym Group pump up your portfolio?Gym Group was one of the best UK small-cap stocks in 2024 and will beef up your profits this New Year
-
MoneyWeek's five predictions for investors in 2025MoneyWeek's City columnist gazes into his crystal ball and sees five unexpected events in store for investors in 2025
-
Three British stocks boasting reliable and growing dividendsRebecca Maclean, co-manager of Dunedin Income Growth Investment Trust, highlights three British stocks worth investing in
-
How buy-and-build stocks deliver strong returnsBunzl, DCC and Diploma became successful through buy-and-build – rolling up dozens of unglamorous businesses. How does it work and what makes it successful?
-
Where to invest – MoneyWeek writers give their tipsInvest in Canada and US small caps, and snap up a cosmetics company and a Hungarian telecoms outfit
-
Singapore Technologies Engineering shows strong growthSingapore Technologies Engineering offers diversification, improving profitability and income
-
Royal Mail takeover by Czech billionaire approved for £3.6bnRoyal Mail is now owned by Czech billionaire Daniel Kretinsky, following a £3.6 billion takeover
