Fidelity Fund Beating 96% of Peers Likes Japan’s AI-Linked Firms

Japanese stocks rose to record highs at the start of the year, reinforcing the Fidelity International fund manager’s preference for smaller AI-related companies that still look affordable.

The $944 million Fidelity Funds Pacific Fund, managed by Dale Nicholls, has about 23% of its investments in Japanese stocks; This is the highest figure for any country. Data compiled by Bloomberg show it outperformed 96 percent of its peers last year. One of its largest holdings is Fujibo Holdings Inc., which makes polishing pads needed for chip devices, and the company’s shares have risen twice as fast as the benchmark Topix index in the past year.

“Japan is always a great stock-picking market,” Nicholls said in an interview. “If you look at it, there are a lot of names in the tech space, especially at the small end. I think their competitiveness is still underappreciated.”

The huge global demand for AI is driven by Sandisk Corp. in the US. and Samsung Electronics Co. in South Korea. It has caused share prices to rise for memory chip makers whose products, such as , are powering the artificial intelligence boom. This has made them relatively expensive, paving the way for cheaper stocks from smaller firms like Fujibo with AI businesses.

Fujibo, which started its operations as a cotton spinning company in 1896, now derives approximately 45% of its revenue from the polishing materials business. Polishing pads are used for items such as LCD glass needed for smartphones, hard drives, and silicon wafers for semiconductor products.

The Tokyo-based company surged 80% last year, surpassing the Topix’s 32% gain and the 39% advance in the Topix gauge for smaller companies. But Fujibo’s price-to-earnings ratio is trading at around 20 times; It’s slightly higher than companies in the Topix index and still lower than the Nikkei 225’s 23x P/E, suggesting it may have further upside potential.

Although Japan’s chip device makers are not the world’s largest, “you still have strong market positions in very critical parts of the supply chain,” said Nicholls, who joined Fidelity in 1996. He expects greater gains from smaller companies that benefit from emerging AI-related businesses.

In general, small stocks pose higher risk to investors than large stocks because they tend to be more volatile and low liquidity can make it difficult to execute large sell orders when necessary.

In fact, Nicholls’ ten largest holdings are industry giants Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. It is managed by. Still, Nicholls sees opportunity in smaller names.

“I think there’s room there to increase the weights,” he said. “I will say that I am finding more and more opportunities among smaller capital firms in Japan, especially in growth areas.”

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