Fidelity Bets Active Investing, Asia to Win After Virus Rout
Fidelity Sees Picking Asian Assets to Prevail During Rout
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Buying stocks and bonds based on company performance and outlook, especially assets based in Asia, will prevail over passive investing in a virus-wrecked world, according to Fidelity International Ltd.
Active management will beat index-tracking funds as the global market meltdown has led to a seizable dislocation between prices and fundamental value, the firm’s Asia Pacific Chief Investment Officer Paras Anand said on a call with reporters Wednesday. Valuation as an indicator will be back on investors’ radar, he said, including in Asia where the price-to-book ratio of the regional benchmark stock gauge has fallen to 2011 levels.
“The return opportunity for active management has been higher today than it has been at any time in recent history,” Anand said. There will be a significant underperformance by funds tracking indexes as “we are expecting an ongoing period of volatility,” he added.
Asset managers globally who pick stocks and bonds are getting a rare respite from the drum-beating of passive funds as, unlike index-tracking peers, they can quickly cut risk by offloading losers and stock piling cash amid the novel coronavirus-triggered market turmoil. The global pandemic has roiled markets, sending several Asian stock indexes into bear-market territory as businesses suffer economic and supply chain disruptions.
Assets in U.S. index-based equity mutual funds and ETFs topped those in active stock funds for the first time in August last year.
Fidelity, which manages $419 billion globally, sees “increased use of fiscal measures” to manage the immediate impact of coronavirus, along with longer-term policy action to support demand. “We are hitting a tipping point around the market reaction of the value and benefit of central bank strategy,” Anand said.
Governments and central banks across Asia -- from New Zealand, South Korea, Indonesia and India -- have announced measures to support economies and financial markets in a region with equity assets of $22.9 trillion.
A consistent flow of fiscal stimulus will create “leadership for sectors tied to the economic cycle,” compared with growth stocks that have domincated investing most of the last decade, Anand said.
Asia assets
The tailwinds of fiscal stimulus around the world, a weakening U.S. dollar and a crash in oil prices are making Asia’s credit and stock markets attractive for investors, Anand said.
Asian credit markets have been more resilient than U.S. peers, with spreads on regional investment-grade corporate bonds widening less rapidly in the past month. The risk premium on U.S. high-grade bonds over Asian peers reached 39 basis points on Tuesday, the widest ever since at least 2009, according to Bloomberg Barclays indexes’ data.
“You are still getting paid in investment grade and high yield with sort-of healthier yields relative to other credit markets globally,” Singapore-based Anand said.
Anand favors China’s consumption, financial and technology plays as well stocks tied to domestic growth. He also prefers Japanese firms linked to demand, and some companies in India, where valuations remain relatively high.
“Japan remains perhaps one of the most attractively valued in the world,” with companies’ attention to corporate restructuring leading to improved profitability and return-on-equity, Anand said.
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