Nick Price manages Fidelity’s £889 million Emerging Market Equities fund. He visited our offices recently and spoke to a rapt audience about how he hopes to make money for those invested in the fund – read on to find out more.
A prudent investor
Nick Price starts by talking about his background – with a thick South African accent, he tells us that he graduated from the University of Natal with a Bachelor of Commerce and Accounting. He joined Fidelity in 1998 as an analyst before becoming manager of Fidelity Emerging Market Equities in 2009.
‘Prudent, adj: acting with or showing care and thought for the future’. Price comes back to this word throughout the meeting to discuss his investment philosophy – it is also the word Fidelity uses in its literature to describe how the Emerging Markets Equities team values a business. Price certainly seems a prudent person – he speaks with clarity and consideration and it’s easy to see how this demeanour applies to the way he manages money.
Price explains that he has reason to be prudent; reason to be cautious. Over more than 20 years of investment experience built at Fidelity and other firms, he’s seen a number of financial crises. That, along with his background in accounting, means he is particular with a company’s finances. He tells us that you can’t grow a company at the cost of a strong balance sheet. Looking through the literature, we see that ‘strong, unleveraged balance sheets and self-funding businesses’ are important to Fidelity’s overall process. Debt, Price says, increases risk and he’s interested in businesses that can grow on their own initiative.
Price aims to achieve long-term capital growth, searching for companies with strong market positions and competitive advantages. Looking further at the fund’s investment philosophy, it avoids state-owned business because of what Price calls ‘different motivations’. Price also looks for businesses with management that is shareholder-friendly – he says that Fidelity has great access to the management of companies due to its size and reputation.
A team-based approach
The team takes a ‘best ideas’ approach to stock picking with the highest-conviction stocks pulled from analysts around the globe in Latin America, Emerging EMEA (Europe, Middle East and Africa) and Emerging Asia – these stocks make up concentrated regional portfolios. It’s from this pool that the Emerging Markets portfolio is constructed.
Price recognises that a structured and formal team approach is vital to success, but on the other hand, he understands that staying informal keeps things open and means ideas are passed easily from the analysts upwards – and from the manager downwards.
A ‘rapid speed of information transmission’ through the team is noted, and there is sector expertise at the analysis level. Price points out that there is no blame culture and this tells us most about the team-based approach of the fund, as each member takes responsibility for investment ideas passed through the collective.
The fund’s top 10 overweight positions (stocks allocated to the portfolio above the percentage suggested by the benchmark) include HDFC Bank, Naspers and Steinhoff International. HDFC Bank is one of India’s biggest banks. Naspers operates a pay TV business across Africa and owns stakes in a range of e-commerce businesses across emerging markets, including a 33% stake in Chinese internet company Tencent. However, it is Steinhoff International that Price talks about at length.
Price has looked at Steinhoff over a period of 12 years and he estimates that he’s met the management team 20 to 30 times. It’s a furniture and household goods company based in South Africa, but it owns high street brands in Europe including Harveys Furniture and Bensons for Beds in the UK. This gives it diversification and makes it an international player – it’s grown because of its acquisitions, which have also come with property. Price says its management demonstrates business logic and the company continues to grow nicely.
Samsung, China Mobile and Bank of China are among the fund’s top underweight positions (the stocks allocated below the percentage suggested by the benchmark). Price says simply that where they don’t have an opinion on a stock, they won’t own it.
Is prudence an option for you?
Our research team rates Fidelity Emerging Markets four stars, which means it’s a fund we have a strong conviction in. To invest in this fund or any others featured through our investment selector, please visit select.bestinvest.co.uk/InvestmentSelector or call us on 020 7189 2400.
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