Fidelity China Special Situations’ record year and 10% dividend hike

The trust, a member of interactive investor’s Super 60, significantly outperformed the MSCI China Index.

Fidelity China Special Situations (LSE:FCSS) has been one of the big winners of the pandemic, posting its highest returns over the past year since launch.

For the trust’s financial year, which runs to the end of March, the China trust saw its share price rise by 92.2% and delivered a net asset value (NAV) return of 81.9%. Both returns were significantly ahead of the MSCI China Index return of 29.1%. FCSS is a member of interactive investor’s Super 60 list.

While the trust’s main focus is on capital growth, its dividend has increased for the 10th consecutive year by 10.1% to 4.68 pence per share.

China’s outperformance over the past year versus other regions is largely due to the fact that it was first-in and first-out of the Covid crisis. 

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Nicholas Bull, chairman of FCSS, described the returns as a “remarkable achievement” and attributed it to the trust’s focus “on the increase in the wealth and the size of the middle class in China as the driver of growth in the value of companies which provide goods and services to the middle class”.

He adds: “We have always advocated that investors who wish to have a diversified portfolio should have a portion of it dedicated to China to gain exposure to the continuing growth in the Chinese economy.

“Certainly, in the last year, that has been proved right; and indeed the annual growth in the value of an investment in the company over the last 10 years has been 15.6% based on share price total return.

“Another benefit witnessed in recent times is that the Chinese equity market has been a useful diversifier of risk for investors seeking a diversified portfolio.”

In the financial results, it was announced that the trust intends to increase the amount it can hold in unlisted companies from 10% to 15%. This will be subject to shareholder approval at its annual general meeting on 20 July. At present, the trust has nine unlisted holdings that account for 7.4% of the portfolio.

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Commenting on the outlook ahead, FCCS’ portfolio manager Dale Nicholls notes that “while Chinese markets do still look attractive relative to other major peers, valuations are now well above historical averages and investors should be mindful of this”.

He adds: “One needs to stay disciplined around valuation - picking great companies is not the same as picking great stocks.”