Fidelity China Special Situations - August best-seller

Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest.

One of the most notable aspects of the list of best-selling investment trusts on Fidelity Personal Investing in August was the move up the rankings of Fidelity China Special Situations. This had risen from ninth position in July to top spot, aided by the strong recent recovery of the Chinese stock market.

After an impressive 13% share price gain in July, the trust is now the best performer in its sector over all time periods up to ten years¹. The man in charge throughout the decade was manager Dale Nicholls, whose outstanding achievement has resulted in him being awarded his first ever A rating by Citywire.²

To mark the trust’s fifteenth anniversary, Tom Stevenson recently sat down with Nicholls and the trust’s founder Anthony Bolton, to discuss the story so far and the opportunities that lie ahead.

Approach and objective

Fidelity China Special Situations aims to achieve long-term capital growth from an actively managed portfolio made up primarily of securities issued by companies in China, both listed and unlisted, as well as Chinese companies listed elsewhere³.

Nicholls has a disciplined, bottom-up stock selection approach, that involves looking for cash generative businesses with good long-term prospects and strong management teams. Ideally these attributes should not be well understood by the market and not be reflected in the valuations⁴.

One of the things that sets the fund apart is the focus on smaller companies, as these tend to be under researched and may be more mispriced as a result. However, small-cap stocks also tend to be higher risk, so it is essential to meet the management teams in order to understand them and monitor their progress⁵.

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What are the managers’ latest views?

Last September, the government decided to launch a huge stimulus package in an effort to breathe new life into the property market and halt deflation. The size of the fiscal support helped the local stock market to recover and fend off the threat of higher US tariffs and a possible trade war⁶.

Writing in the latest factsheet, Nicholls said that China's stimulus measures reflect a strong commitment to boosting domestic demand, aiming to drive economic recovery, earnings growth and market sentiment⁷.

“In 2025, China's economy continued to show resilience with robust industrial production and retail sales. Accelerated policy support and fiscal spending, alongside some improvement in consumer sentiment aided performance. However, challenges persisted, particularly in the real estate sector⁸.”

The underlying portfolio

The most notable feature of the portfolio is the significant tilt towards small and mid-cap stocks with 66.8% of the net asset value (NAV) invested in companies worth less than £5 billion, compared to a benchmark weighting of just 7.7%. There is a further 10.1% in unlisted investments⁹.

This is reflected in the sector allocation where there are large overweight positions in industrials, consumer discretionary and health care, with the biggest underweight being the financials. Overall, it is a very unusual portfolio that bears very little resemblance to the benchmark¹⁰.

The main aim of the trust is to generate long-term capital growth, yet the annual dividend has also grown very quickly. For the year ended 31 March 2025 the Board declared a total payment of eight pence per share (excluding a special dividend of 1p), which is equivalent to an historic yield of around 2.5%¹¹. Please note this yield is not guaranteed.

Performance and discount

There has been a tremendous recovery in Chinese equities in the last 12 months with Fidelity China Special Situations generating share price cumulative growth of 53.9%, which was well ahead of the 37.9% increase in the MSCI China index. The active return is even more impressive over the period since the performance commencement date of 16 April 2010, with a gain of 261.5% versus 101.8%¹². Please remember past performance is not a reliable indicator of future returns.

One of the reasons that the investment trust has been able to outperform is the intelligent use of gearing (borrowing to invest), which has the effect of magnifying the potential gains and losses. The latest figure of 18.2% (net) is towards the top end of the 10-25% historical range¹³.

Despite the strong recent performance, the discount to net asset value (NAV) remains stubbornly wide at 8%. This is after the company bought back 5.9% of the issued shares in the last financial year¹⁴.

What do the brokers say?

The broker Investec says that given the distinct investment philosophy and portfolio, returns are likely to diverge materially from the benchmark and investors must be comfortable with this and the underlying risk profile¹⁵.

“However, we like the high conviction approach and we believe that Fidelity’s depth of analytical resource represents a further competitive advantage, particularly given the focus on under-researched mid- and small-caps, while compelling valuations represent an attractive margin of safety¹⁶.”

How do the costs stack up?

The ongoing charges figure is 0.89%¹⁷, which seems reasonable given the active approach and specialist nature of the market, not to mention the strong performance record.

More on Fidelity China Special Situations

• Read: Top 10 best-selling investment trusts in August
• Read: Investing in emerging markets - three fund picks
• Read: Which global index fund is best for you?

Past performance is not a reliable indicator of future returns

Source: FE, share price returns from 19.9.20 to 19.9.25. Excludes initial charge. 

Source:

¹ QuotedData 26.8.25
^{2, 6} Citywire 27.8.25 
^{3, 4, 5, 7,8, 10, 12, 17} Fidelity China Special Situations, July factsheet 
^{9, 11, 13, 14,15, 16} Investec, broker report dated 11.6.25