Fidelity China Special Situations PLC - Board Changes
At the recent Annual General Meeting the Board has announced the appointment of Mike Balfour as a non-executive director of the Company with effect from 1 October 2018. He will also serve as a member of the Management Engagement, Nomination and Audit Committees of the Board.
Mr Balfour has over 30 years’ experience in financial services. He was chief executive of Thomas Miller Investment Ltd until 2016 and was previously chief executive at Glasgow Investment Managers and chief investment officer at Edinburgh Fund Managers Limited. He is a non-executive director of Standard Life Investment Property Income Trust plc, Martin Currie Global Portfolio Trust plc and Perpetual Income and Growth Investment Trust plc. He also chairs the investment committee of TPT Retirement Solutions (previously The Pensions Trust) and recently retired as a non-executive director of Murray Income Trust plc. He is a member of the Institute of Chartered Accountants of Scotland.
As previously announced, John Ford has stepped down from the Board with effect from today’s date (25 July 2018). At the Annual General Meeting held earlier today, the Chairman thanked Mr Ford for his contribution to the Board.
The Chairman also announced at the recent Annual General Meeting that it has agreed that David Causer will step down from the Board at the conclusion of next year’s Annual General Meeting as he will have completed his nine year term.
Fidelity China Special Situations PLC Annual Results & new variable management fee
- Net Asset Value (NAV) returned +22.2% (total return) for year ended 31 March
- The Company increased its dividend by 40% to 3.50 pence per Ordinary Share
- New Variable Management Fee to replace existing performance fee
Fidelity China Special Situations PLC’s Net Asset Value (NAV) returned +22.2% (total return) for the year ended 31 March. The Board can also announce that the Company has increased its dividend by 40% to 3.50 pence per ordinary share. Over the tenure of portfolio manager*, Dale Nicholls, the Company’s Net Asset Value (NAV) returned +144.8%, compared to the Company’s Benchmark Index**, which returned +98.9%.
Nicholas Bull, Chairman of Fidelity China Special Situations plc, comments: “When we launched the Company back in 2010, the question we encountered was ‘why invest in China?’ Now it is, ‘what is the best way to invest in China?’ We believe that our Company, which has delivered an annualised growth rate of 12.5%*, provides investors with a highly attractive way of gaining exposure to the growing parts of the Chinese economy. The recent announcement by MSCI to include A-Shares in Company’s Benchmark is without doubt a positive step. Not only does it acknowledge the considerable development in the country’s equity markets, but it also puts China firmly on the radar for investors.”
The Board of Fidelity China Special Situations PLC has announced an overhaul to its fee structure. The Company will remove its performance fee and current fixed annual charge in favour of a new Variable Management Fee.
The model, which will take effect as of 1 July 2018, will reduce the current headline annual fee of 1.00% of net assets to 0.90% of net assets per annum. The performance fee of up to 1.00% will be removed and replaced with a variable fee which moves symmetrically +/-0.20% relative to the Company’s Benchmark Index. The maximum fee that the Company will pay is 1.10% of net assets, but if the Company underperforms against the Benchmark Index, then the overall fee could fall as low as 0.70% of net assets.
Nicholas Bull continues: “Fund fees have come under increased scrutiny in recent years as investment managers seek to prove their worth in the face of rising demand for low cost passive funds. I am pleased we can today announce a new and innovative charging structure. The new arrangement provides an overall reduction from the current management fee structure, especially in those years where the performance fee was payable.”
*Data as at 31 March 2018
** MSCI China (GBP)
Find out more about Variable Management Fees in the Video below
Variable Management Fees
Fidelity China Special Situations PLC: A-OK for China
Dale Nicholls - Portfolio Manager
The MSCI’s decision to begin including Chinese A-shares into its indices is without doubt a positive step towards the opening up of China’s capital markets. Not only does it acknowledge the considerable development in the country’s equity markets, but it also puts China firmly on the radar for investors.
We have been investing in the onshore market for some time through our QFII (Qualified Foreign Institutional Investor) quota and more recently through the Hong Kong and Shanghai/Shenzhen Stock Connect programmes. It has historically been a fertile hunting ground for stockpicking as it is under-researched yet filled with a host of compelling investment opportunities.
That said, a degree of caution and selectivity is advisable. It is important to note that the A-share market is predominantly driven by retail Chinese investors that tend to be attracted to smaller very high growth “blue sky” businesses for which valuations are often excessive.
Big or small?
Given this, I tend to find the relative valuation of larger-cap names more attractive. A prime example of a holding in this space would be Shanghai International Airport, which operates Pudong Airport in Shanghai, the second busiest airport in China. It is a beneficiary of growing Chinese domestic and international tourism. The company also has additional revenue drivers from the non-aeronautical side with a developing food, retail and beverage offering at the airport. A key advantage for Pudong Airport is it has further room to expand so it doesn’t face the capacity constraints that some of the larger more established airports face.
Elsewhere, I am also finding opportunities in the consumer space with the rise of domestic brands across a range of areas. Midea is the leading white good manufacturer in China with a diverse product offering, including air conditioning, small appliances, washing machines, and refrigerators. It is run by an independent and professional team that has high ownership of the company, aligning interests with minority shareholders. Midea has a strong focus on product mix upgrade and will launch higher-end brands as the middle class grows and Chinese consumers upgrade.
I also own Angel Yeast, China’s largest manufacturer of yeast and yeast derivative products. Constant demand from food, alcohol and drug producers means stable domestic growth and the company is also moving to expand its global footprint.