Fidelity China Special Situations reduces fees by 5bps

It currently charges a management fee of 0.9%, which will be cut to 0.85% from next month. For net assets over £1.5bn, the fee will remain at 0.7%, it added, with the variable element of the fee of +/-20% also remaining unchanged.

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In its annual results today (8 June), the company posted a 2.6% rise to its net asset value and a share price return of 0.3%.

By comparison, the trust’s benchmark – the MSCI China index – returned 1.4% over the period, in UK sterling terms.

This marked a significant improvement for the company from last year’s results, when it reported a 34.9% drop in NAV and a 39.2% fall in share price, against a 29.3% decrease for its benchmark at the time.

Mike Balfour, chair of Fidelity China Special Situations, said despite China’s 3% growth rate in 2022, the economy and stock market are recovering after the removal of the country’s zero-Covid policy.

“It was pleasing to see positive net asset value and share price returns and a return to outperformance for the company against its benchmark index”, he added.

“While we expect the company to generate its returns primarily from capital, corporate earnings growth in China and the maturing of business models has meant healthy growth in dividends. Our own dividend – which has grown every year since inception – makes an important contribution to shareholder returns and this year grows by 13.6% from 5.50p to 6.25p.”

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The company said its holdings in the Chinese consumption space and in materials contributed to its positive performance, with its overweight allocation to industrial having added value.

Yet some selected names in financials and communication services “weighed on returns”, it explained, as did an overweight exposure to the IT sector.

In a research note today, Numis said that the trust had hired a Chinese unlisted investment specialist in the last year, allowing attention to be further paid to the unquoted sector.

Dale Nicholls, portfolio manager at Fidelity China Special Situations, said: “Throughout my tenure as the company’s portfolio manager, I have been focused on the rise of the Chinese consumer, and that remains the case, with approximately 43% of the portfolio invested in consumer stocks at the year end, mainly in stocks within the consumer discretionary sector.

“The biggest change post-Covid is the outlook for the consumer. While the recovery is bumpy and varies somewhat by sector, the path to recovery is clearly there.”

He added: “Having said this, the obvious beneficiaries of reopening – particularly travel and certain consumer stocks – saw a significant upswing as the zero-Covid policy was lifted. However, this has made the investment case less compelling for some companies and overall, I have reduced exposure to such names.”

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