Fidelity Far East Fund

Analysis: Henry Chan recently took over the management duties of this fund from Joseph Tse, who had been at the helm since July 2003. Under Mr. Chan’s management, there aren’t expected to be wholesale changes as both managers follow a similar process.

The fund invests in countries located in Southeast Asia, excluding Japan. Mr. Chan will look for companies that are in the early stages of an earnings cycle. His rationale for this is that he believes that earnings growth and valuation expansion will result in greater stock price performance. The portfolio is built using a combination top down, bottom up approach. The top down analysis is used to identify trends that are used in focusing the portfolio in the most opportune areas. Individual securities are selected using a bottom up, “Growth at a Reasonable Price” approach that looks for companies that are expected to experience earnings growth over the next few years.

Companies must also have quality management, strong balance sheets, ample funding in place and there must be a near term catalyst in place to help unlock the potential share price growth. A great deal of emphasis is placed on downside protection and the manager carefully assesses downside potential and overall volatility of each position.

They can invest in companies that have at least $500 million in market capitalization, which allows a great deal of flexibility for the managers. It is expected that the portfolio will be biased towards large caps. It will be a diversified portfolio, holding between 100 and 150 names.

While performance of the fund has been decent, now that a new manager is running the fund it becomes less important. Mr. Chan does have an impressive resume, managing funds for Baring Asset Management and Invesco before joining Pyramis in 2011.

Looking ahead, we don’t envision significant changes in the risk reward profile of the fund. We do expect that the fund will become slightly more concentrated, but will still hold well north of 100 names. We also may see a slight uptick in volatility as the new manager will be looking for companies that are earlier in the growth cycle than the previous manager. Ideally any increase in volatility will be offset by higher returns.

Given the recent change in manager, we would be reluctant to recommend this fund at the moment. We would like to see at least a few quarters with the new team to get a better sense of how the fund will be managed. Once we have seen this, we will be reexamining our rating on the fund.