Following a recent meeting with Dale Nicholls,
fund manager of the Fidelity China Special Situations Trust (FCSS), we’ve upgraded the
Morningstar Analyst Rating from Neutral to Bronze. The key driver of our increased confidence
is the quality and assuredness of the management of Dale Nicholls. Whilst his tenure here is
relatively short – he formally took over from Fidelity legend Anthony Bolton in April 2014
– his investment experience with the Chinese market goes back to 2003 when he began managing
the successful Fidelity Pacific Fund, which has a significant exposure to Chinese equities.
The investment process is another area of conviction: it is entirely bottom up with
Nicholls permitted significant latitude to deviate from the index at the stock and sector
level. This means that he is free to pursue the best opportunities available within this
dynamic economy, without being exposed to less attractive areas of the market.
Nicholls has been at Fidelity since 1996 and is thus well positioned to utilise its extensive
global research analyst capability, including that of a dedicated small-cap analyst, which
is salient given the small and mid-cap bias within the portfolio.
In 2016 shareholders approved an increase in the limit of unlisted investments from
5% to 10%. This adds an interesting and fairly unique element to the fund as does the ability
to short indices for portfolio hedging, and short individual stocks where the valuations
are elevated and business is structurally flawed. These elements of the portfolio are
relatively modest, but we feel add incrementally to the overall proposition.
All told we think that the fund has considerable merit for investors seeking access to this
dynamic and increasingly relevant equity market. There will be bumps along the way given the
structure of the portfolio and the nature of the market, but we feel that Nicholls is
a good fit for this fund given his talents and experience within the region. In recognition
of these factors and his promising start we’ve upgraded the Morningstar Analyst Rating to
Bronze from Neutral.