Fidelity China Special Situations introduces benchmark-linked charges

Facing a squeeze from passive trackers and ETFs, Fidelity China Special Situations has changed its charging structure. 

Fidelity China Special Situations has announced an overhaul to its fee structure. From the start of next month investors will no longer be charged a performance fee, while the annual charge will vary under a new ‘variable management fee.’

According to Fidelity, the new charging structure will reduce the headline fee from 1 per cent of assets to 0.9 per cent.

Fidelity China Special Situation’s performance fee meant that investors often ended up paying north of 1 per cent. Currently, Fidelity, has an ongoing charge figure of 1.16 per cent. By introducing the ‘variable management fee,’ that figure should come down.

Sometimes referred to as a ‘fulcrum fee,’ the new variable management fee will now move in accordance to the fund’s performance against the benchmark index, the MSCI China.

Based on the performance the fee will swing symmetrically by up to 20 per cent. So, with a headline fee of 0.9 per cent, investors will be changed somewhere between a minimum of 0.7 per cent and a maximum charge of 1.1 per cent.

Fidelity International Investment had previously announced its intention to roll out such new charging structures for its trusts.

According to Nicholas Bull, chairman of Fidelity China Special Situations, the move comes as a defence against the growing use and appeal of passive tracker funds and ETFs. ‘Fund fees have come under increased scrutiny in recent years as investment managers seek to prove their worth in the face of rising demand for low cost passive funds,’ he noted.

‘The new arrangement provides an overall reduction from the current management fee structure, especially in those years where the performance fee was payable.’

Active management focused on China is also likely to come under increased competition following the introduction of China domestic-listed firms on the MSCI benchmark in June, allowing investors better passive access to the region.

While Fidelity China Special Situations has often beaten its Asia Pacific sector peers since the departure of fallen star manager Anthony Bolton in 2013, the trust has not consistently outperformed its benchmark.

Returns, taking into account fees, between March 2017 and March 2018 were 20.89 per cent, just below MSCI China’s 23.89 per cent.

Rolling 12-month returns net of fees, GBP (%)


Source: Fidelity International, as at 31 March 2018, cumulative performance (NAV) in UK Sterling. Index = MSCI China. Basis: bid-bid with income reinvested, in GBP, net of fees.

Jargon Buster: Fulcrum fee

Fund charges are completely baffling; there’s the annual management charge, which despite its name does not encompass all of the annual charges investors pay. Then, there’s the ongoing charges figure. This is a truer reflection of the costs incurred, but fails to include trading fees. 

There’s a new fund charge type that has entered the fold – the ‘fulcrum fee’ – which out of the three has the most meaningless name, but according to experts ‘better protects the interests of investors’. In plain English the fulcrum fee reduces the fund fee charge when the fund fails to beat its benchmark. But, when a fund outperforms, investors pay a bit extra.

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