Winners rationale

Private banks and gatekeepers have been keen on introducing geographical diversity in investment management to sidestep the US-China trade tensions that have been the source of much global volatility, especially in high-growth stocks in mainland China.It is no surprise then, that European investments have found favour among Asian investors. A particularly attractive candidate has been Fidelity Funds’ European Dynamic Growth Fund, which has consistently outperformed its benchmark over various time periods on a cumulative basis since its inception in January 2001. In 2020, it distinguished itself from peers by its outperformance and the sheer consistency in doing so.

As of 30 September 2020, the A-EUR share class had outperformed its benchmark by over 21,000 bps. The fund’s unconstrained and active approach allows for the best ideas to be expressed in a high conviction manner. The fund typically owns between 50 to 60 stocks, with active money usually more than 80%.

The fund’s mid-cap bias means the fund has exposure to some of the more attractive and undervalued growth opportunities which are less followed by the wider market, enabling access to the hidden gems. But despite its mid-cap bias, the fund’s beta has typically been below 1 — with volatility lower than the reference benchmark.

Fidelity’s European Dynamic Growth Fund’s investment approach is underpinned by a high-conviction, benchmark unconstrained, and concentrated management philosophy, where thorough fundamental bottom-up research drives the portfolio’s underlying composition. The fund has a high growth and quality bias style, where the managers select stocks which exhibit a strong and sustainable growth profile over the longer-term with high barriers to entry.

Underlying stocks must display strong quality growth characteristics to be included in the portfolio. Quality characteristics include market winners that enjoy a firm leadership or monopolistic position in their operating industry, as well as names with strong balance sheets, robust cash flows and a high earnings visibility. These companies in turn tend to display higher growth rates, and the fund selects its underlying composition from this pool of names. The portfolio is also deliberate in favouring companies which operate in structurally growing markets.

Overlaying this approach is a strict valuation discipline, and a target investment hurdle rate of at least a double-digit internal rate of return on a per annum basis. Stocks which no longer have firm upside potential are trimmed from the fund in a very disciplined manner. This strong emphasis on bottom-up stock picking means that, over the longer term, the fund’s outlook is more heavily dependent on its underlying stock specific merits rather than on external macro or exogenous factors. This explains how it was able to better navigate through periods of extreme market shocks and dislocations historically.

For these reasons, Fidelity has been selected as Asian Private Banker’s Best Fund Provider – Europe Equity.