FF - Asia Equity ESG A-Dis-EUR |
Morningstar's Take
|09/04/2025by Claire Liang
| The strategy continues to benefit from a topnotch portfolio manager backed by well-resourced analyst team, and a time-tested investment process. We reiterate the strategy’s People and Process ratings at High. Morningstar has enhanced the way we assess alpha opportunity for funds, which is a key component in our Morningstar Medalist Rating calculation. More of this strategy's Medalist Ratings than usual may therefore change with this update even in the absence of changes to pillar ratings or fund costs. Portfolio manager Dhananjay Phadnis is an experienced and talented Asian equity investor. He began his investment career in 2001 and has led this strategy’s UK and Luxembourg-domiciled vehicles since November 2013 and March 2015, respectively. He has built strong track records throughout his career and has proven to be able to add value via stock selection over time. After a period of stability between 2020 and 2023, the supporting Asia Pacific ex-Japan analyst team, which consists of nearly 50 members, experienced elevated turnover in 2024. The team lost 11 fundamental equity analysts, with half of the departures attributed to performance evaluations and Fidelity’s firmwide cost-cutting initiatives. While the team’s stability bears watching, it remains one of the largest in the region. We also take comfort in Phadnis’ hands-on approach. Effective March 26, 2025, Fidelity changed the name of the strategy’s Luxembourg-domiciled vehicle to Fidelity Asia Equity ESG to comply with incoming ESMA naming rules. The fund now applies Paris-aligned benchmark exclusions alongside its existing environmental, social, and governance exclusions, and in total around 5% of the MSCI All Country Asia ex-Japan Index is out of reach. Similarly, the UK-domiciled vehicle was renamed Fidelity Responsible Asia Equity on March 20, 2025, to meet SDR requirements. While it is not required to apply PAB exclusions, we expect both vehicles to continue being managed in the same manner going forward. We think these changes have limited impact on the strategy’s investment process. Phadnis has long favored quality firms with strong management teams and reliable value creation. Since the strategy adopted a sustainability mandate in early 2021, about 90% of the 50-70 stock portfolio has been invested in companies with high ESG ratings, defined as a Fidelity ESG rating of B or above. As such, the additional exclusions did not lead to any changes in the portfolio holdings. Phadnis has built a commendable track record of beating both the Morningstar Asia ex-Japan Target Market Exposure Index Morningstar Category benchmark and its peers over the long term with generally good downside protection. That said, 2023 and 2024 proved challenging, with stock selection in China being the biggest detractor. This partly owed to stylistic headwinds, as the Chinese market favored high-dividend-yielding stocks and state-owned enterprises for safety during this period. Nonetheless, we are monitoring Phadnis’ stock-picking efforts in China. We continue to think highly of Phadnis’ investment capabilities and his tried-and-tested investment approach and believe this strategy is poised to deliver over the cycle. |
Still one of our most favored Asian equity options despite recent setbacks. To find out how Morningstar rates a fund click here.
| Morningstar Pillars | |
| People | High |
| Parent | Above Average |
| Process | High |
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
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