Citywire + rated manager Nitin Bajaj has said 2017 was ‘not a pleasant experience’ and has vowed to stick to his value focus as he seeks to rejuvenate his small-cap-focused fund.

In an investor update, Bajaj highlighted how key areas of investment for the Fidelity Funds – Asian Smaller Companies fund had not benefited from improved liquidity in the Asian market.

On a one-year basis, the $879 million fund – which was soft-closed last March – returned 21.5% in US dollar terms, while its index, the MSCI AC Asia Pacific ex Japan Small Cap TR USD, rose 32.8%.

‘There are parts of the market completely left out of the 2017 bull, such as telecoms, utilities and small-cap value stocks. They have hardly participated in this bull market and frankly it is hard to speculate on the reasons for that,’ he said.

Industrials account for 12.2% of the fund at present, while utilities make up 6.3% of exposure and Bajaj said this had impacted performance. However, the sector specialist said his value-focused style could benefit as market dynamics change.

‘If you have been a small-cap investor, it has not been a pleasant experience, but on the other hand it creates opportunities to buy and own some of these fantastic businesses.

‘These are trading on fantastic valuations and, if anything, I have started focusing even more on owning good businesses run by competent and trustworthy management and making sure I am owning them at the right price.’

Bajaj added that it is important in the current climate to be clear where you are not investing as much as where you are. For instance, he runs a 2.9 percentage point underweight to IT relative to the fund’s benchmark, as he believes tech stocks have overheated.

‘We have been very focused on staying away from what is fashionable today, which seems to be technology companies, so the fund has not owned much in technology and at the moment it owns even less.’

With that in mind, Bajaj said investors should be cautious over investing in areas such as IT, which have been buoyed by the improved liquidity.

‘The more the liquidity-driven bull market continues, the more the risk of us having a severe pull back at some point. At that time, the more you don’t have good businesses run by good management at good prices, the more you are in for trouble and I don’t want that.'

On a three-year basis to the end of December 2017, the fund returned 29.1% against a 29.2% rise by its Citywire-assigned benchmark.