In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This week our interviewee is Nicholas Price, Portfolio Manager of the Morningstar 3-star rated Fidelity Japan Trust PLC (FJV).
Which Sector Shows the Biggest Promise in 2023?
In Japan, I would say that the technology sector holds a lot of promise. There are many globally competitive companies in semiconductor equipment and materials that are trading on compelling valuations as we approach the trough of the cycle. The sector has gone through a huge inventory correction over the past year or so and new drivers such as generative AI are emerging. The other area of the market that I would highlight is the mid/small cap growth space, an often-overlooked segment that is trading on cheap valuations.
What's the Biggest Economic Risk Today?
In my view the biggest economic risks are still around inflation and how interest rates can impact market valuations and levels.
Describe Your Investment Strategy
I follow a bottom-up stock selection approach, with the aim of identifying companies where the market is underestimating or mispricing future growth, and unearthing companies at an early stage of their development. This means that I typically find more opportunities among smaller and medium-sized companies, where lower levels of analyst coverage provide greater scope for mispricing and the opportunity to discover hidden investment pearls. Ultimately, I am looking for quality businesses that can deliver long-term growth.
Which Investor(s) Do You Admire?
The investors I admire are those who cast a wide net, operate in neglected areas of the market and turn over a lot of stones to find hidden gems. I certainly look up to talented investors outside of Fidelity, but Peter Lynch and Joel Tillinghast stick out.
Name Your Favourite 'Forever Investment'
I don’t think that there are any real forever stocks. The one name that comes closest though would be Keyence, a factory-automation enabler with a unique consulting business model that creates its own markets and executes on a global scale.
What Would You Never Invest In?
I would have to say companies with poor governance or an unwarranted level of hubris – basically factors that could negatively impact the alpha potential of an investment.
Growth or Value?
While we have seen a strong value market over the past two years or so, the valuations of growth stocks, particularly mid/small caps, have come down to value levels and I don’t see this dichotomy continuing. If the view that long-term rates have peaked gains traction, this would help to put a floor under growth stocks, and I would expect some of the names that performed poorly in 2022 to come back quite strongly.
House or Pension?
If I had to choose one, it would be a house given the importance of shelter and security. And prices are more reasonable in Tokyo than in London.
Crypto: Brilliant or Bad?
I don't have a particularly strong view at this point, but it’s certainly an area to watch and I will be keeping an eye on new and pre-IPO companies that emerge in the space.
What Can be Done to Improve Diversity in Fund Management?
In Japan, the job-for-life model has typically seen university students go straight into and stay at blue chip companies. I think that the fund management industry can certainly do more to reach out and attract a wider range of graduates by explaining the concepts of research and analysis and the intellectual fulfilment a career in investments can provide.
I work in Fidelity's Tokyo office, where the investment team is well represented across nationalities, languages and gender. A diversity of backgrounds and views is really something to be promoted.
Have you Ever Engaged With a Company and Been Particularly Proud (or Disappointed) of the Outcome?
The work that we do in conjunction our local engagement team can be very satisfying, particularly with smaller companies where lower levels of disclosure can detract from their sustainability ratings. Implementation at smaller and owner-led companies can be very quick, and its rewarding to see our engagements contribute to positive change over a relatively short period of time.
By working closely with our engagement team, we are able to identify companies that are implementing real change and moving up the governance scale. As these companies improve disclosure, ESG ratings should catch up and the market should adjust valuations accordingly. For investors, this creates an opportunity to benefit from the adjustment.
What's the Best Advice You’ve Ever Been Given?
Something that long-standing portfolio managers at Fidelity have emphasised is to take advantage of the opportunities that the market throws at you, especially during corrections. Capitalising on those type of events can generate significant upside. Also, the importance of a strong sell discipline and locking in performance when you are right on a stock.
What Would You be if You Weren’t a Fund Manager?
I would say that journalism would probably be my second choice after fund management. There are similarities between the stock market and the news cycle in that both require a combination of historical context and analysis of daily changes and events.
