Fidelity Indonesia Y-Dis-USD

Analyst Report
Morningstar's Take
|07/03/2019

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.


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
PeopleNeutral
Madeleine Kuang is a reasonable replacement and is backed by a sizable team, but this is her first stint as a portfolio manager.
ParentPositive
Changes to the senior management team require monitoring, but we continue to consider Fidelity International an above-average parent.
ProcessNeutral
A sensible new process, but it is still unproven.
PerformanceNeutral
Promising, but too short to make meaningful conclusions.
PriceNegative
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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In order to provide consistency across the report data provided by different Asset Managers, the calculated data points presented are generated using Morningstar’s proprietary calculation methodology which is set out in more detail at(https://www.morningstar.com/research/signature)