Fidelity China Special Situations (LON:FCSS) provides exposure to a diversified, actively managed portfolio of Chinese equities. The manager takes a bottom-up approach to stock selection, focusing on the faster-growing consumer-orientated sectors of China’s economy. FCSS’s NAV returns have been strong over the last two years, although modestly lagging its MSCI China index benchmark. This is attributed to FCSS’s tilt to small- and mid-cap stocks, which underperformed large-caps, partly due to passive capital flows into index funds. Over five years, FCSS has significantly outperformed the benchmark, as well as its open- and closed-ended peers. A new variable management fee structure, with a lower base level and no performance fee, will take effect from July 2018.
Investment strategy: Focused, bottom-up approach
FCSS maintains a diversified portfolio of 130–140 holdings, with no restrictions over sector weightings. The manager focuses on structurally faster-growing areas of the economy, targeting companies with robust cash flows and strong management. Detailed company research is conducted by Fidelity’s extensive analyst team. Risk management is a priority, making site visits and company meetings an essential part of the investment process. There is a small- and mid-cap bias, as these stocks tend to be under-researched and can often provide better opportunities. Futures, options and contracts for difference (CFDs) are used to add gearing, as well as to take short positions. Limited to 10%, unlisted securities currently represent c 5% of the portfolio.
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