Fidelity China Special Situations PLC announces its latest results

June 2019
  • Fidelity China Special Situations PLC recorded a Net Asset Value (NAV) total return of -5.3% for the year ended 31 March 2019, underperforming the MSCI China Index (the Company’s Benchmark Index) return of +0.9%.
  • The Company’s share price total return was -0.3%. The NAV and share price performance (on a total return basis) over Dale Nicholls’ 5 year tenure and since launch is well ahead of the Index.
  • The Company increased its dividend by 10% to 3.85 pence per ordinary share.
  • The Board has decided to adopt a formal discount control policy whereby it will seek to maintain the discount in single digits in normal market conditions.
  • The revised Variable Management Fee has contributed to the reduction in the Ongoing Charge for the year of 1.02%.

Nicholas Bull, Chairman of Fidelity China Special Situations plc, comments; “In 2018/19 China displayed two of its enduring characteristics: volatility in the stock market and economic growth continuing at a rate in excess of 6% per annum. Following a strong performance the previous year, the Company’s share price fell during the year and then recovered to finish close to where it had started. All of this demonstrates that, with China, patience is rewarded and an investment in the Company should be viewed over the medium to long-term.

During 2018, the concerns about trade and policies put in place in China to restrict growth in credit clearly impacted business sentiment and growth and this contributed to the weaker stock market. Since the end of 2018, more stimulative policy, particularly for the private sector, has supported the economy and the stock market has performed markedly better in the opening months of 2019.

China’s growth rate of 6.6% for 2018 continues to run way in excess of developed market economies. Increasingly investors are seeing the benefit of having a portion of their overall portfolio dedicated to China and our Company was designed, from the start, to fill that need.

As investors focus more on China itself, rather than seeing it as merely another emerging market, more dedicated China funds have been launched and I want to set out clearly how we differentiate ourselves.

First, as an investment trust, we are closed ended. This enables our Portfolio Manager, Dale Nicholls, to invest in smaller and mid-sized stocks where he sees the best growth even if they are somewhat illiquid; and for us to invest in unlisted stocks which we can hold for a period of years in anticipation of them becoming quoted on a stock market. Furthermore, we are able to add a level of gearing to the portfolio to enhance returns.

Second, we have focused on the inherent growth in the New China Economy. The middle class in China continues to grow in size and in its spending power. The economy is increasingly driven by consumption and our approach from the start has been to build a diversified portfolio of stocks across the consumer sector.

Third, we have avoided certain parts of the stock market, in particular the banks and the larger State Owned Enterprises, many of which are components of our Benchmark Index, unless there is a compelling investment case for specific stocks

Dale Nicholls is supported by a large team of analysts in China enabling him to identify and invest in companies that are not well researched and therefore potentially undervalued. In the debate between active and passive management I firmly believe that, when investing in an emerging market like China, active management is rewarded. The performance of the Company over five years and since launch against our Benchmark Index reflects this.”

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