Fidelity China Special Situations (FCSS) offers investors direct exposure to China for a portion of their portfolio, aiming to deliver long-term capital growth from investing in companies listed in China, and Chinese companies listed elsewhere. Since the trust’s inception in April 2010, FCSS’s NAV total return has increased by nearly 11% pa. The portfolio has a bias towards mid- and small-cap companies, which tend to be less well researched and potentially mispriced. The manager, Dale Nicholls, is focused on opportunities related to rising domestic consumption, which in his view is unlikely to be disrupted by the ongoing US-China trade dispute.
China’s economic growth drivers continue to shift away from fixed asset investment and lower-value exports, in favour of domestic consumption. The manager believes there are many exciting long-term investment opportunities arising from structural trends, including urbanisation, rising incomes and technological innovation. As shown in the graph above, Chinese equities’ discount to global equities has been in a narrowing trend over the past four years; however, the current discount of c 22% offers potential for further improvement in relative valuation.
Obtain direct exposure to China’s continuing growth. Fundamental approach to investing in China, supported by Fidelity’s extensive research capabilities, involving company visits and in-depth analysis.
Unconstrained approach allows the manager to invest in his highest-conviction ideas, including up to 10% in unlisted stocks ahead of their listing.
Proactive board, committed to shareholders’ interests; it recently reduced its management fees and introduced a new discount control policy.
FCSS currently trades at an 9.1% discount to its cum-income NAV. This is towards the higher end of the trust’s most recent range of 6–10% since February 2019, which may reflect the current subdued sentiment towards Chinese equities. The board introduced a single-digit discount policy in June 2019 and actively promotes the trust. There is scope for a narrower discount should investor appetite improve.