Fidelity Indonesia Y-Dis-USD

Analyst Report
Morningstar's Take

by Jan Nel, CFA
*  This rating and report were issued for a different share class of this fund. The performance and fee structure of this class may vary from that referenced.
Following the appointment of Bart Grenier as its global head of asset management in January, Fidelity International Limited (FIL) announced further changes among its senior management team.

Grenier joined from Fidelity Investments (FMR), where he was head of investment solutions and innovation. Prior to this he was chairman, CEO, and CIO at The Boston Company, a boutique asset manager that is majority-owned by the Bank of New York. He spent six years before this as CIO and global head of institutional investments at Deutsche Asset Management. From 1991-2005, he held a number of senior investment roles at FMR.

New Head of Equities

As planned, Dominic Rossi stepped down from his role as equity CIO in April 30, 2018 to become a consultant on public policy. He was replaced by Romain Boscher, who reports to Grenier.

We know Boscher from his time at Amundi Asset Management, which he joined in 2011 as global head of equities from Groupama Asset Management, where he had been deputy CEO in charge of investment management. When Amundi acquired Pioneer in 2017, Boscher saw an adjustment in his role, becoming co-head of equities alongside Diego Franzin.

CIO of Fixed Income to retire

Fixed income CIO Charles McKenzie has announced his retirement at the end of 2018. The group is in the process of finding his replacement. Elsewhere on the fixed income desk, Steve Ellis was made head of fixed income Europe, while Bryan Collins was made the head of fixed income Asia.

President Stepping Down

A further changing of the guard will see Brian Conroy step down from his role as FIL’s president at the end of February 2018. After three years at the helm in London, he will return home to the United States to a senior role within FIL’s sister company FMR. FIL CFO Simon Haslam will step in as acting president until a successor is found. Haslam has worked at FIL since 1995 as a senior advisor and group CFO and is one of the firm’s most experienced executives.

Our understanding is that over the years FIL was becoming more independent from FMR in its operations (they operate as separate legal entities). However, the recent crossover of senior management and move to closer align pricing structures (in 2017, FIL announced the launch of share classes with performance fees, which are commonly employed on FMR products) suggest an increased level of FMR’s influence.

While such changes can often cause disruption, having met with Grenier, we do not have any immediate concerns that the new management set up will have a negative impact on the firm as a whole or any of the funds that have a Morningstar Analyst Rating. We will monitor the situation closely over the coming months to see how things evolve with the new management in place, but for now see no reason to change FIL’s Parent rating, which remains Positive.

Although we believe that Madeleine Kuang is a reasonable replacement following Gillian Kwek’s surprise retirement, this is her first stint as a portfolio manager. She has brought some positive changes to the process, but it is still unproven. We therefore maintain the Morningstar Analyst Rating of Neutral. Kuang joined Fidelity in London in 2010 as an investment analyst and moved to Fidelity’s Singapore office in 2012 to assume coverage of ASEAN transport and conglomerate sectors. We believe she is a sensible appointment given her six years of experience covering ASEAN companies, complemented by a total of 16 years of investment experience. Kuang benefits form a strong analyst pool, consisting of four dedicated ASEAN analysts and eight regional analysts with ASEAN coverage. She also has access to Fidelity’s deep and experienced team of more than 50 investment professionals located in various offices throughout the region, providing comfort around breadth of coverage. Kuang is implementing a new investment process that we believe to be sensible. She continues to follow a bottom-up process with a focus on management quality and governance, as well as valuations. The biggest change is the introduction of a stock classification process consisting of three categories, core compounders, future leaders, and mispriced stocks. It’s a good incentive, but the thought process behind the allocation among the three categories is rather fluid and dependent on the portfolio manager’s market views. Another positive change is the increase in the portfolio’s active money to 43% as of Dec. 31, 2018, from 26% as of June 30, 2017, against the custom prospectus benchmark of MSCI Indonesia IMI Capped at 8%, which we think would allow more room for alpha generation. Kuang had increased the fund’s exposure to the consumer discretionary sector, reversing her predecessor’s underweighting. At 14.1%, the fund had a 3.4% overweighting in the sector compared with the index as of Dec. 31, 2018. Conversely, she had sold Kwek’s bets in the consumer staples sector, bringing the allocation down to an underweight position compared with the index. Kuang’s track record since she took over in June 2018 is not long enough to make any definitive conclusions here. Through December 2018, the fund’s performance of 3.5% has been promising so far, placing it in the third percentile among peers. Overall, more time is needed to see how Kuang fares as a portfolio manager.

Morningstar Analyst Rating™
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Portfolio RoleGiven the risks of single-country emerging-markets funds and the concentrated nature of Indonesia’s stock market, this offering should be kept to a small portion of a broader portfolio.
Morningstar Pillars
Madeleine Kuang is a reasonable replacement and is backed by a sizable team, but this is her first stint as a portfolio manager.
We consider Fidelity International to be a high-calibre investment house with a focus on investment excellence.
A sensible new process, but it is still unproven.
Promising, but too short to make meaningful conclusions.
The fund’s clean share class is expensive.
Morningstar Analyst RatingMorningstar evaluates funds based on five key pillars, which it's analysts believe lead to funds that are most likely to outperform over the long term on a risk-adjusted basis.
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