Fidelity China Special Situations PLC

Asia-Pacific Equities

Rated Fund 2015-20. Taps into rising consumer demand in China

Fidelity China Special Situations is one of two trusts that focus purely on China – a market manager Dale Nicholls believes to be too big to ignore.

He thinks that one day the sector will be Asia ex China rather than Asia ex Japan, because the long-term possibilities for China are so great. Darius McDermott, managing director at FundCalibre, the fund ratings and research provider, agrees, “as long as you are willing to go through some ups and downs along the way”.

Nicholls, who has managed the trust since 2014, has presided over a considerable improvement in its performance. This is partly due to a revival in investor sentiment towards China and partly his focus on ‘new’ China – investing in areas of the market related to China’s modernisation. He likes small and medium-sized companies where he believes a lower level of research leads to more mis-pricing opportunities.

Since 2016 Nicholls has been able to invest 10% in unlisted companies, up from 5%, amid a trend for Chinese companies to list on a public stock exchange after their development has progressed. At the end of 2019 the trust had a 6% exposure to unlisted companies.

Gearing of 23% and the manager’s ability to take short positions in single companies and indices also serve to increase its risk profile, so it is best suited to more adventurous investors willing to take a patient approach.

For long-term investors who can take some volatility, David Liddell, a director at online investment advisory service IpsoFacto Investor, believes “China, with its ever-expanding middle class, is surely a must for some portion of an investment portfolio”. This trust’s reasonably high discount (averaging 12% over three years) adds to the attraction.

Narrative and ratings content all as of January 2020.

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Name
Fidelity China Special Situations PLC
Manager
FIL Investment Management (HK) Ltd
Type
Closed Ended Investment Company
ISIN
GB00B62Z3C74
Sector
Country Specialists: Asia Pacific
Launched
19/04/2010
OCF
0.93 %
Risk Rating
5
3 Year Sharpe
0.39
3 Year Alpha
-1.20
Yield
1.4 %
Benchmark
MSCI China GR USD
Fund Size
£ 1.28 billion
NAV
270
Gearing
125
Discount Premium
-11
The investment objective of the Company is to achieve long-term capital growth from an actively managed portfolio made up primarily of securities issued by companies listed in China and Chinese companies listed elsewhere. The Company may also invest in listed companies with significant interests in China.
Holding %
Alibaba Group Holding Ltd ADR 10.52 %
Tencent Holdings Ltd 10.32 %
China MeiDong Auto Holdings Ltd 7.03 %
Fil Loan Issuer Term 02/14/2023 5.69 %
21Vianet Group Inc ADR 3.74 %
Tencent Holdings LtdCFD 3.62 %
China Pacific Insurance (Group) Co Ltd Class HCFD 3.25 %
Hang Seng China Enterprises Index Future Mar 20 2.87 %
Hang Seng Index Options June. 29, 2020 Put 24000 2.64 %
Wuxi AppTec Co LtdCFD 2.59 %
Region %
Asia - Emerging 89.57 %
Asia - Developed 9.36 %
Sector %
Consumer Cyclical 36.40 %
Communication Services 13.83 %
Technology 10.25 %
Healthcare 9.50 %
Industrials 7.97 %
Financial Services 7.11 %
Consumer Defensive 7.04 %
Name
FIL Investment Management (HK) Ltd
Address
Hong Kong, Hong Kong
UCITS
No
Legal Structure
Closed Ended Investment Company

Managers

Dale Nicholls
Joined 04/01/2014

Dale Nicholls joined Fidelity in 1996 as a Research Associate in our Tokyo office. It was during his tenure as an analyst that Dale first began to take an interest in the dynamics of the Chinese market. He regularly visited Chinese companies to get a clear view of the key supply and demand chains of the industries he covered. In 2003, he was promoted to portfolio manager of the Fidelity Pacific Fund and retains management of that portfolio today. In his current role, Dale spends much of his time travelling within China to meet with the management teams and competitors of companies in which he may, or already does, invest, visiting well over 100 companies a year.

Data provided by Morningstar.

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