Active strategies to outperform as dislocations between price and value widen

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SINGAPORE (April 30): In the course of the decade-long bull run, many investors have found it easy to make returns by simply putting their money with index funds. However, the flood of passive money has caused bigger dislocations between the price of securities and their fundamental value, says Paras Anand, chief investment officer, Asia Pacific at Fidelity International.

With the current volatility, it is an opportunity for active returns and active strategies to outperform. “The return opportunity to active selection is higher today than it has been at any time in recent history. With real pressure happening at the corporate level in this environment, our ability to make distinctions between different underlying companies and securities is going to be a source of real return for our end-clients,” he says.

Anand’s confidence is based on Fidelity International’s team of more than 400 investment professionals, covering the various asset classes. This huge team is committed to continuous research and building better understanding of what drives industries and individual businesses. On top of interacting with company management at the rate of one every eight minutes, they visit shop floors, speak to customers, competitors, suppliers and independent experts.

Paras Anand, chief investment officer, Asia Pacific at Fidelity International

By doing so, Fidelity is able to develop broad themes and form conclusions from these “local” points of analysis, which are then further augmented with insights shared by other colleagues, as well as the use of data, artificial intelligence and visualisation to highlight points of significant interest.

For the near term, with the Covid-19, Fidelity expects market volatility to persist, making longer-term impact on corporate earnings, as well as catalysing changes in industry structures.

Yet, investors will do well if they have the patience to stay invested in Asia and Emerging Markets, where returns, be that bonds or equities, will likely outstrip global averages, says Anand.

He sees a few positive drivers for this region. First, following the pandemic, there is a positive picture emerging across a number of measures for the Chinese economy, with a healthy level of recovery in the short term post the containment. “In particular there has been a strong recovery both in domestic consumption and fixed asset investment‑related activities since the end of the first quarter. If we are able to see successful containment strategies and a fall in infection rates, we may start to see similar
levels of economic activity returning in other markets,” says Anand.

Next, the fact that there has been modest stimulus from China in this period gives Fidelity the sense of confidence that what growth it sees returning is likely to be sustained over the medium term. Finally, other factors that will support growth in the region are the fall in oil prices and a more bearish prognosis for the US dollar in the medium term.

“In addition to these tailwinds, it’s important we recognise that Asia and China in particular, have held up very well on a relative basis to other markets globally in this recent period of market volatility. This has been quite different to what we’ve seen in previous negative periods in markets,” says Anand.