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.
China plays a key role in the global economy, and its capacity for innovation remains an important driver of long-term growth. The country’s competitive position is strengthening across industrial and technology supply chains, as its home-grown companies expand into critical areas such as automation, robotics and markets driven by electrification.1
It is likely that Chinese firms will continue to capture a larger share of worldwide demand in these sectors2 and in order to benefit, investors who are comfortable with the risk, might want to consider a modest allocation to a specialist single-country fund. A good example is the £1.1 billion Fidelity China Special Situations investment trust, which has recently published its annual results.
Objective and approach
Fidelity China Special Situations aims to achieve long-term capital growth through an actively managed portfolio of Chinese companies, both listed and unlisted. Its primary focus is to identify businesses that are likely to benefit from the country’s evolving economy and long-term growth.3
Manager Dale Nicholls, who has led the trust since 2014, follows a bottom-up approach, targeting attractively valued companies with durable competitive advantages, often in sectors aligned to China’s structural growth themes. He is supported by Fidelity’s extensive team of analysts and together they have built an impressive long-term track record.4
Performance
Since its launch in 2010, the trust has delivered an NAV total return of 8.6% per annum, which ranks third out of 21 open and closed-ended peers, and is comfortably ahead of the 4.1% generated by its MSCI China benchmark. Performance over the year to 31 March 2026 (the latest reporting period) was also strong, with a gain of 10.7% versus 1.6% for the index.5 Past performance is not a reliable indicator of future returns.
Nicholls has made good use of contracts-for-difference to enhance the returns. These instruments enable him to take both long and short positions, so as to benefit from price movements in either direction, and to gear the portfolio (borrowing to invest), with a typical debt to equity ratio of 10% to 25%.6
The portfolio
At the end of May, the trust's largest active sector positions included a 20.8% overweight allocation to Industrials and a 9.5% overweight in Consumer Discretionary, while Financials were 11.7% underweight. Gross market exposure - the value of long positions plus short positions, less any hedges - stood at 127.2%, indicating the manager's high level of conviction.7
Another notable feature is the meaningful allocation to less liquid opportunities such as the small and mid-caps, with 61.5% of the total equity exposure invested in companies valued at less than £5 billion, compared to just 6.7% in the benchmark. Unlisted holdings account for 10.8% of the assets, comfortably below the 15% cap.8
How does the manager see it?
Writing in the annual accounts, Nicholls said that the MSCI China index is currently trading at around 11.4 times forward earnings, broadly in line with its long-term average, and at an approximate 43% discount to the S&P 500 on a forward price to earnings (P/E) basis.9
“Our focus remains on identifying companies that are mispriced relative to their long-term earnings’ prospects. We believe this disciplined approach positions the portfolio well to deliver attractive long-term returns for our shareholders.”10
A reliable and growing source of income
Revenue earnings per share (EPS) have increased significantly in recent years, rising from 4.7p for the 12-months ended March 2021 to 9.22p for the March 2026 reporting period. This reflects the growing willingness of Chinese companies to return capital to shareholders through higher dividend payments.11
Although revenue EPS has fluctuated, the board has made good use of the revenue reserves - which now stand at 6.77p per share - to achieve a steadily rising dividend since the trust’s launch in 2010. Based on the latest annual distribution of 9p, the shares currently offer a prospective yield of 3.5%. Please note that this is not guaranteed.12
Costs, discount and buybacks
Fidelity China Special Situations has an ongoing charges ratio of 0.92%, rising to 1.09% after including the variable management fee.13 This reflects the higher costs associated with an actively managed portfolio of less liquid Chinese shares.
The board aims to keep the trust's discount within single digits under normal market conditions and actively uses share buybacks whenever necessary. During the last financial year, the trust repurchased 6.7% of the outstanding shares in issue14, with the discount currently standing at 9%.
What do the brokers think?
In a recent research note, Investec said China has repeatedly demonstrated its ability to move up the value chain and embed itself within global growth megatrends, including the energy transition and, increasingly, AI.15
“We remain constructive on the manager’s ability to position the portfolio to benefit from these structural trends, while also exploiting valuation dislocations, particularly in less liquid areas of the market.”16
Source:
1,2,3,9,10,11,12,13,14 Fidelity China Special Situations, annual report 2026
4,5,6,15,16 Investec, 12.6.26
7,8 Fidelity China Special Situations, factsheet, 31.5.26
| (%) As at 30 June |
2021-2022 | 2022-2023 | 2023-2024 | 2024-2025 | 2025-2026 |
|---|---|---|---|---|---|
| Fidelity China Special Situations PLC | -30.6 | -25.2 | 2.3 | 27.3 | 2.4 |
Past performance is not a reliable indicator of future returns
Source: Morningstar, total returns in GBP terms from 30.6.21 to 30.6.26. Excludes initial charge.
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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This investment trust invests in overseas markets and so the value of investments can be affected by changes in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. The shares in Fidelity China Special Situations investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. Before investing, please read the relevant key information document which contains important information about the fund. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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