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 is forecast to become the world’s largest economy within the next decade, with the growth being driven by an expanding middle class, rising incomes and technological innovation. This powerful combination should create a strong backdrop for funds investing in the country with one potential beneficiary being Fidelity China Special Situations PLC.

Manager Dale Nicholls has a disciplined, bottom-up stock selection approach, which favours cash generative companies with good long-term prospects that are controlled by strong management teams. Being structured as an investment trust enables him to take advantage of gearing (borrowing to invest) when appropriate and to make illiquid unlisted investments without the risk of becoming a forced seller.

One area that he has always been focused on is the rise of the Chinese consumer and the natural development of the middle class, with consumer discretionary being a key overweight relative to the benchmark. The same is true of industrials, a sector which is benefitting from innovation and consolidation.

Fidelity China Special Situations PLC 5-year share price performance

None

Source: Yahoo Finance from 14.8.18 to 11.8.23 Basis: Share price in GBP. Excludes initial charge. 

Past performance is not a reliable indicator of future returns

In order to maximise the potential long-term returns the fund has a high level of gearing of 23.8%, although this will inevitably add to the volatility along the way. There is also a significant allocation to unlisted stocks of 16%, with a specialist in this area having been recruited in the last year to add oversight.1

China has endured three years of severe COVID restrictions, which have now been lifted, but it will take time for consumer confidence to recover. Policymakers are aware of this, as well as problems elsewhere in the property and banking sectors and have recently announced various stimulus measures to help support the economy as it emerges from the lockdowns.

The broker Numis regard Dale Nicholls highly and believe that Fidelity China Special Situations is an attractive vehicle for those who are comfortable with the risk of investing in a leveraged fund with a focus on mid and small cap companies operating in the country. Since he took over in April 2014 he has generated an impressive NAV total return of 125% versus 64% by the MSCI China index.2 Please remember past performance is not a reliable indicator of future returns.

Fidelity China Special Situations PLC is currently available at a discount to net asset value of around 9%, with the Board actively buying back shares to keep it to single digits.

Dale Nicholls shares more on his investment approach in this latest interview below.

More on Fidelity China Special Situations PLC

Five-year performance table

(%) As at 14 August 2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Fidelity China Special Situations PLC -8.3 52.0 17.9 -30.9 -8.8

Past performance is not a reliable indicator of future returns

Source: FE, as at 03.03.23 Basis: Total returns in GBP. Excludes initial charge.

1,2 Numis Investment Companies Research, 8 June 2023

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. The shares in the Fidelity China Special Situations investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. 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.

Share this article

Latest articles

Inflation drop: what it means for rates, ISA funds and savings

Hopes for a rate cut in June are in the balance


Andrew Oxlade

Andrew Oxlade

Fidelity International


Richard Evans

Richard Evans

Fidelity International

How I find tomorrow’s big winners

How do you spot the market-leading companies of the future?


Ed Monk

Ed Monk

Fidelity International