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Analysis of the Fidelity Funds – China Focus Fund
Emerging markets funds

Analysis of the Fidelity Funds – China Focus Fund

The fund is benchmarked to the MSCI China Capped 10% Index which is used by the team for its investment selection.
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31 MAY, 2023

By Andrea Sepúlveda from LatamSelf


Fidelity Funds - China Focus Fund

This is a Luxembourg-domiciled, value-style fund that seeks, like any good equity fund, long-term capital appreciation.

The strategy invests at least 70% of its assets in equities of companies listed in China and Hong Kong, as well as in non-Chinese companies that do most of their business in China. In addition, the fund may invest up to 60% of its assets (directly and/or indirectly) in China A-shares and B-Shares (in aggregate).

The first thing to comment on is that, in addition to being an equity fund and given that it has a focus on China, the emerging market par excellence, it is a fund for an investor profile that can withstand a non-negligible level of volatility.

Regarding its benchmark, the fund takes the MSCI China Capped 10% Index as a reference, which is used by the team for investment selection, risk control, and performance comparison. In any case, the strategy is active, allowing the team to have some cash available to take advantage of market opportunities and make bets different from the benchmark, either from a geographic or sector point of view.

About the house, Fidelity is a fund manager that, in equities, stands out for its strategies in Asia (especially China, Asia Pacific, and India), and has been actively present in the entire region for more than 50 years, which gives them a vast knowledge of that market. Moreover, as indicated on its website, it is the first global asset manager to register with the China Asset Management Association as a private fund manager in the country.

Thus, the China Focus fund, with more than 20 years of track record, is one of Fidelity's leading funds in Asia. The philosophy of this fund is to take advantage of opportunities in sectors that are not necessarily the "most attractive" as it has a value-style countercurrent approach.

The investment team is composed of very experienced people in Asia, led by Nitin Bajaj, with more than 20 years at Fidelity, who in his history has been a key player in the firm's Asian strategy teams, with a high level of value style experience, and his co-portfolio manager Alice Li based in Hong Kong, who joined Fidelity in 2019 but has previous experience at firms such as Credit Suisse and HSBC. Both are supported by Fidelity's +150 analysts in Asia and the firm's global analyst network. The fund team follows a disciplined, bottom-up investment style of selection to identify high-quality companies with competent management teams, attractive valuations, and business models with good three- to five-year prospects.

Very important to this fund, and the firm in general, are the ESG considerations that are integrated into the investment process. Fidelity has a proprietary rating system for these criteria, which allows it to cover +3,000 companies globally.

At the end of March 2023, this strategy had more than USD 3.5 Bn of assets under management.

Performance of the Fidelity Funds - China Focus Fund

Performance as of 03-31-23 in USD (%)

1m3mYTD1 year3 years5 yearsFrom 20-02-17*
Cumulative fund growth5.
Cumulative index growth4.14.14.1-5.0-4.3-16.414.3
Annualized fund growth---
Annualized growth of the index----5.0-1.4-3.52.2
Quartile range (Y-USD)**111111

*Performance start date. **Quartile ranking is that of the class included in the Peer Group Universe. Quartile ranking is an internal calculation by Fidelity International.

Note: Past returns are not predictive of future returns. Fund returns may increase or decrease as a result of changes in exchange rates. Source: Factsheet Fidelity Funds - China Focus Fund, as of 03/31/2023.

As can be seen from the chart above, it is a fund that beats its benchmark (MSCI China Capped 10% Index) and is also consistent. If the long-term investment strategy is considered, the measures that should be weighted more heavily are 3 years and 5 years of history. In this case, it performs well above its benchmark, the same for 1 year.

Measurements (3 years)

Annualized Volatility: fund (%)24.79Beta0.78
Relative Volatility0.84Annualized tracking error11.37
Sharpe ratio fund0.24Information ratio0.73
Sharpe ratio index-0.08R20.86
Annualized Alpha7.67

Measures are calculated from month-end data. Source: Factsheet Fidelity Funds - China Focus Fund, as of 03/31/2023.

In reviewing the risk indicators in the table above, the first thing one should notice is that the 3-year Alpha is very positive, which means that the investment team has been able to add value over its benchmark (MSCI China Capped 10% Index).

When considering the alpha of the fund and also looking at the 3-year historical volatility of the portfolio, we can see that yes, it has paid off the highly active management of the investment team, having bets on the dominant companies or with better projections of the most valuable sectors of that market.

About the market Beta, this in three years is less than 1, which indicates that it is a fund that bets or follows the market to a lesser extent, that is to say, it has a systemic risk a little lower than the reference index, being a more defensive strategy than the general market. Which, in any case, is to be expected given the fund's style.

Other indicators for Fidelity Funds - China Focus Fund

Source: Fidelity Funds - China Focus Fund, as of 31-03-2023.

Sector or geographic allocations are what usually reveal the active nature of the funds or their tilt to a certain investment style. In this case, you can see that the fund tends to underweight those sectors more related to the growth style (Inf. Tech, Cons. Discretionary) and overweight those of a more value style (Energy, Material). Financials stands out, but they must be more related to the specific companies rather than the sector itself.

The fund's selective deviation from its index helps us see that adding this strategy, whose process and performance have been validated by history, brings diversification to a portfolio containing a more general China fund or ETF.

Positioning of Chilean Pension Funds in the Fund

Source: LVA Fundmate analysis as of 30 April 2023.

Here we can see that Chilean pension funds today have about USD 750 million in the Fidelity China Focus fund. This is the second most invested fund for the type of asset: China (broad) and according to public information at the end of December 2022, all pension funds would have investments in it. This allows us to say that the style, results, and team of this fund passed the tests of sophisticated teams, with access to information and investment processes of global stature such as the Chilean AFPs and, therefore, if their analysis indicates investing in this fund, it is another argument that cannot be overlooked.


- Positive and consistent alpha.
- Experienced team in Asia
- Institutional, long-term fund.
- Significant track record and large size.
Nitin Bajaj is the lead PM as of Sept 2022. Although he has +20 years in the firm, a lot of experience, and would follow the value style of the fund, he could have differences in the investment process from the previous PM. Not a reason for non-investment, but a reason for monitoring.

The Fidelity Funds - China Focus Fund is a fund with a track record, experienced team, and consistent alpha and value style, which makes it a fund that brings real diversification to a usual growth portfolio in China.

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