e-fundresearch: Mr. Ronald Slattery, the fund manager of Fidelity Funds Japan Advantage Fund (ISIN: LU0161332480). Since when are you responsible for the fund management?
Slattery: Since February, 2007.
e-fundresearch: Which benchmark do you adhere to?
Slattery: Russell/Nomura Total Market Value Index.
e-fundresearch: Are you also responsible for other funds at the moment?
Slattery: Yes. In addition to Fidelity Funds Japan Fund, I manage six funds/accounts for different domiciles. These include one retail fund registered in Japan, one retail fund registered in Korea, two segregated accounts for Japanese pension plan sponsors, and two Japanese equity portfolios for Japanese private placement funds.
e-fundresearch: What is the total volume that you manage in all your funds?
Slattery: $1.7 billion as of 31 July 2010.
e-fundresearch: Regarding the performance: which performance did you achieve since the beginning of the year and in the years 2003-2008? Absolutely and relatively to the relevant benchmark?
Slattery: The following table shows the performance:
e-fundresearch: How content are you with your own performance in the last years and this year?
Slattery: Compared with the fund’s strong relative performance over the 2.9 years to the end of 2009, its performance since the beginning of this year has been unsatisfactory. However, the performance has been recovering quickly since mid-March. Over the last four months since the end of March this year, the fund registered 1.6% gains ahead of its benchmark index. I’m trying my best to stay ahead of the market.
e-fundresearch: How are you able to deliver added value for your investors with your performance?
Slattery: The value investment style has a long history of outperformance in Japan and I believe it will continue to be rewarding over the long-term.
I try to add value through a value-oriented stock picking strategy. I focus on companies that are cheap on normalized PER and/or PBR adjusted for unrealized gains/losses. My investment approach places more emphasis on valuation than catalysts for changes or growth drivers, and investment decisions are driven by target prices I set for each stock based on the two key valuation metrics I mentioned earlier.
e-fundresearch: How long have you been a fund manager already?
Slattery: Altogether, I have approximately 5.6 years of experience as portfolio manager.
I was appointed as portfolio manager for FF Japan Advantage Fund in February 2007. Prior to that, I was Director of Research whose primary task was to manage the team of research analysts based in Tokyo. On the side, I was also responsible for managing a Japanese equity sleeve of a US-domiciled global equity fund since 1 January 2005.
e-fundresearch: What were your biggest successes and your biggest disappointments in your career as fund manager?
Slattery: My modest success as a value manager so far can be attributable to the fact that I have managed to avoid a value trap.
The value trap is a common problem for those who only look at the price and do not look at corporate fundamentals. I always look at both the financial data of a company and its share price valuations. When I get conflicting signals from these inputs, I always go back to the original earnings growth scenario and/or balance sheets based on which I valued a stock in question.
I do not think there is a magic formula to avoid a value trap. However, a company’s profit margin trend over time has helped me avoid disasters because profit margins – particularly those of cyclical companies’, tend to revert to the mean over the long term. When there are two companies trading well below a conservatively calculated value of their business and/or future earnings growth potential, I choose to invest in the one whose profit margins are either nearing an historical trough level or bottoming out, instead of the other with higher profit margins at an historical peak level.
e-fundresearch: What kind of capital market situation do we have at the moment? How do you act in this environment?
Slattery: Global markets have remained turbulent for the last few months, as the ramifications of the debt crisis in the eurozone are felt right across the world. However, it is not just the sovereign debt problems that have unsettled markets. While the summer months typically usher in a period of reduced trading volumes and constrained market movements, conditions are likely to remain volatile for the time being and we may see a further retreat from risk assets.
In this environment, I have positioned the portfolio to be more defensive. During the second quarter, I took down positions in some technology stocks where near-term upside was limited. Following a rally in the first quarter, some technology stocks started to look expensive, while macro risk in the key overseas markets increased and yen appreciation against major currencies could pose a threat to their earnings. I also adjusted positioning in financials, where I took profits in insurers. I closed positions in insurers that achieved my target prices. I also closed the position in Nomura, anticipating that credit risk and low trading volumes would fuel further downside. Meanwhile, I selectively added to positions in undervalued defensive stocks in the pharmaceutical sector. I initiated a position in Japan’s biggest drug maker Takeda Pharmaceutical. The company looked cheap on its cash holdings and the dividend yield looked attractive.
e-fundresearch: What are the special challenges in this environment?
Slattery: Due to convergence of valuations in the Japanese equity market, it is increasingly difficult to find valuation anomalies, which enables the arbitrage of valuation differentials. However, I believe that if volatility falls on a trend basis, there will be a good chance for value stocks to outperform growth stocks going forward.
e-fundresearch: What objectives do you have till the end of the year and in the mid term for the upcoming 3 to 5 years?
Slattery: There is no difference between my short-term and long-term objectives.
e-fundresearch: Do you model yourself on someone? Any ideals?
Slattery: No.
e-fundresearch: What motivates you in your job?
Slattery: Everyday is a learning experience. This motivates me to get up and come to work every morning.
e-fundresearch: What else do you want to achieve or do you have any further aims as a fund manager?
Slattery: I am content with my career as a portfolio manager and there are a lot more to learn to be a better manager.
e-fundresearch: What other profession would you have taken interest in, apart from becoming a fund manager?
Slattery: I have always been interested in managing money since I was young. I am one of those fortunate people who enjoy what they do everyday.
e-fundresearch: Thank you for the interview!
