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, but it also 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 15% of the trust’s holdings as at the end of July 2021. 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.
Growth focus has left value cheap
I feel the current focus on themes and growth stocks is a great opportunity. The pivot towards growth stocks between 2016 and 2020 has led to the widest dispersion between growth and value stocks in almost 100 years (similar to the situation in 1999). This bifurcated market in terms of valuations has allowed me to build positions in businesses with long-duration cashflows and good management at attractive prices.
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Given the broad investment universe of the trust includes the whole of Asia (excluding Japan), I can pick from a diverse range of companies across various sectors and geographies from India to the Philippines and I am excited by our holdings in the trust today. We own a portfolio of businesses which are dominant in their industries, earn good returns on capital and are available at attractive valuations.
An attractive yield from hydropower
NHPC (Mumbai: NHPC) is a 100% hydro-electric power generation company in India, operating run-of-the-river power stations. Its current capacity of seven gigawatts will expand to 12 gigawatts with the addition of new hydroelectric power projects over the next two-to-three years. The stock offers a good bargain as it trades at about seven times its 12-month forward earnings and provides a 6%-7% dividend yield. The price/earnings (p/e) ratio is set to drop further to five times as the new power plants start to generate earnings.
A market-leading online broker
Kiwoom Securities (Seoul: 039490) is South Korea’s largest online brokerage firm with a 30% share of the domestic market. The company has built an enduring moat based on best-in-class customer service, technology interfaces and value-added services. The stock trades at about four times its 12-month forward earnings and should be able to grow well in next five years as it adds distribution of savings products and foreign exchange services to its product offering.
IT in Indonesia
Metrodata Electronics (Jakarta: MTDL) is Indonesia’s largest information technology (IT) products distributor and is among the leading players in IT consulting, implementation and system integration. The stock has performed reasonably well since we initiated our position last year during the coronavirus-driven panic. However, Metrodata is still trading on an attractive valuation at 11-12 times forward earnings with net cash on its balance sheet and 20% return on equity. It should be able to grow at 5%-10% annually for the next five years.
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