Interview: Rebecca McVittie of Fidelity Emerging Markets

What is the Fidelity Emerging Markets Fund?

The fund invests in liquid [easy to invest and withdraw] equities [company shares] in medium to larger companies in around 25 countries.

Emerging markets vary significantly; you have quite large, more developed economies, such as South Korea and Poland, down to countries such as India and Nigeria. 

 

Who are the team behind the fund?

Nick Price (pictured above) has managed the fund since its launch in 2010. He also runs Fidelity’s Emerging Europe Middle East and Africa fund. He joined Fidelity in 1998 as a research analyst. Nick  has worked for a variety of investment banks. 

Rebecca McVittie (pictured above) rejoined Fidelity in September 2013 from Newedge UK Financial Ltd. Prior to this, Rebecca was a member of Fidelity’s Emerging Europe Middle East and Africa Fund Institutional group from 2003 to 2007. Rebecca has also held roles at ISIS Asset Management and Henderson Global Investors.

What do you look for when buying stocks for the fund?

We want businesses with good balance sheets that are generating free cash flow – and to avoid companies with lots of debt. If a company has a dominant market position or a unique product, year on year it’s likely to grow.

We want to find those businesses that are difficult to displace, so we look for a strong brand or very low-cost production. For example, China’s equivalent to WhatsApp [a messaging app] is WeChat. This kind of business has a very strong network effect – it’s passed on to friends and family.

What companies have you recently bought?

We’ve increased our holding in mining stocks over the past six months, as we’ve seen a more supportive backdrop for commodity prices – these bottomed in 2016 but have started to rise again in areas such as steel. The Chinese were flooding the market with too much steel, which depressed prices but now they’re making reforms.

We don’t own any Chinese steel as it’s too pricey, but we have added to our holding of Russian steel via a firm called NLMK. Russia is the lowest-cost producer of steel in the world, and NLMK was one of the best performing stocks in the fund last year.

We’ve also bought a copper miner called Grupo Mexico. We got it cheap as share prices were depressed due to weak sentiment. 

What companies have you recently sold?

We have cut exposure to consumer staples. We’ve reduced our holding in a Mexican firm called FEMSA, which operates a convenience store chain similar to 7-Eleven.

What’s the fund’s best investment?

HDFC – an Indian Bank – has performed best and is one of our largest holdings. It’s not state controlled. When a bank is state controlled, it can be involved in state-directed lending, regardless of whether the firms it lends to are profitable, or it funds infrastructure projects with no returns.

The bank is also gaining market share; it has 37 million customers in a country of 1.3 billion people, and it’s been increasing its branch network. It’s invested in its back office operations – to the extent that it’s similar to western banks.

What’s the fund’s worst investment?

Last year, the Brazilian equity market performed very well after a few very touch-and-go years. But we missed the opportunity to add exposure to the Brazilian banking sector.
We’ve never invested in a company where the share price has completely bottomed out.

Why have emerging markets done well lately?

People have started to recognise that the valuations of companies in emerging markets are much more attractive than those in the developed world. Recent headlines, for example, have said that US equities look quite expensive – but emerging markets trade at a discount to the developed world. And while that discount should exist as there are more risks, it has become very wide so there’s a valuation opportunity.

These countries are also very resource-rich – for example, in iron, oil and copper. We’re also seeing government reforms – India has been working to tackle corruption, while China is issuing steel reforms.

 

Are there any challenges on the horizon?

The challenge is that there can be a lot of short-term volatility. We’re always cautious about countries such as Russia where geopolitical situations can escalate. You just have to be responsive and willing to act. In 2014, when tensions between Russia and Ukraine flared, we cut our Russian exposure very quickly.

What would you say to anyone worried about risk?

Emerging markets investing is not for people nervous about volatility, but I would consider it for Isas and pension funds where you’re investing for more than three to five years. The fund manager, Nick Price, and I invest in the fund. 

What’s your top tip for a beginner investor?

When you’re investing in equities, you’re buying a stake in a business. There are very poorly managed companies out there, so focusing on good companies is critical. 

Fidelity Emerging Markets Fund key stats

Launched: June 2010
Fund size: :
£1,804.7 million*
Ongoing charges: 1.01%

*28 February 2017. Source: Fidelity International factsheet, 5 April 2017

 

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