Fidelity China Special Situations doubles index return

From 1 April to 30 September, the trust’s share price rose 56.2%, more than double the MSCI China index return. 

The board of Fidelity China Special Situations (LSE:FCSS), one of interactive investor’s Super 60 choices, has announced it will bring in a tiered fee structure, as the investment trust reports strong performance in its half-year report.

During the reporting period 1 April to 30 September, the trust saw its share price rise 56.2%, more than double the increase in its benchmark (the MSCI China index), while the discount narrowed from 8.6% to 5.6%.

The board will bring in a new fee arrangement from 1 April 2021, in which the trust will charge 0.9% on the first £1.5 billion of net assets and 0.7% above that level. Based on assets as at 30 September 2020, the revised fee would have reduced the ongoing charge by 0.05%, the board said.

The variable element from the current fee structure of plus or minus 0.2% will remain unchanged, depending on whether the trust outperforms or underperforms.

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‘New China’

The portfolio, managed by Dale Nicholls, continues to focus on the theme of ‘New China’, with exposure to consumption, technology and healthcare. The manager said consumer-related stocks were the top contributors to performance during the half year, with luxury car company China MeiDong Auto Holdings (SEHK:1268) and e-bike manufacturer Yadea Group Holdings delivering strongly.

In the materials sector, SKSHU Paint Company, one of China’s largest paint manufacturers, also performed well for the investment trust.  

Unquoted stocks

Among its unlisted stocks, ByteDance saw its valuation increase by a quarter, and SenseTime by 93%. As at the end of November, 5.8% of the trust was held in unlisted investments.

“Successful control of the Covid-19 virus combined with government stimulus has clearly been an important supporting factor in the China recovery,” says Nicholls. “Small localised outbreaks within the China region were handled swiftly and have not really dented the overall economic momentum. China remains on track to be the only major economy to grow in 2020.

“I remain positive about the value on offer in the Chinese stock market and my team and I try to ensure that we are best positioned to capitalise on these opportunities. In my view, the recent closing of the discount between the share price and the NAV of the company reflects a recognition of the positive earnings performance of the companies held in the portfolio, despite the virus and global economic and geopolitical challenges, as well as growing market confidence that they can continue to deliver on their potential.”

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ii’s view

Fidelity China Special Situations is one of interactive investor’s Super 60 picks. The trust provides broad, diversified exposure to Chinese equities, including ‘H’ shares listed in Hong Kong and mainland-listed ‘A’shares. It has been managed by Dale Nicholls since April 2014. He focuses on faster-growing, consumer-orientated companies with robust cash flows.

Nicholls has delivered strong returns for investors since inception and has developed a strong track record as a stock picker in the Chinese market. He took over the portfolio from Fidelity’s Anthony Bolton in 2014.