Fidelity China Special Situations Ord
Why is this fund on our radar?
China remains one of the world’s largest economies, and despite some setbacks, continues to grow at a pace most Western economies could only dream of. Initially driven by its position as the world’s factory, the country is now transitioning into a hub of innovation and high-end manufacturing. This has generated a whole new suite of investment opportunities for investors to identify.
Dale Nichols, the manager of Fidelity China Special Situations (FCSS) is arguably well placed to capture this due to the highly flexible process he has and his considerable experience. The process enables him to consider all parts of the Chinese market, from a range of large and smallest listed companies to those still privately held. This has led to a portfolio that can looks very different to other funds investing in the space, and that has generating strong periods of performance. As a result, the trust scored highly on all of our quantitative metrics, having beaten its peers in performance terms over five years, with a portfolio that has looked very different to comparators.
Skip to Our VerdictPerformance
As is often the case with funds focused on a single market, the fortunes of that country’s economy are likely to have a considerable bearing on the absolute performance of the fund. This has been particularly true of FCSS with domestic Chinese companies having faced a difficult period coming out of the covid pandemic, and internationally focused firms impacted by President Trump’s tariff regime. However, the Chinese government has latterly taken steps to address the economic slowdown with a series of stimulus measures designed to restore confidence amongst both consumers and businesses which has led to a rally. With China’s economy still heavily influenced by government policy, it is likely to have an ongoing impact on return potential.
Regardless of the backdrop, manager Dale Nichols looks to outperform the market in a variety of conditions. He believes this is achievable through the wide opportunity set of companies he can chose from, including large, established, household names, to smaller, fast-growing stocks. In addition, he can invest in private companies which have very different performance characteristics, as well as in offshore markets as we discuss later. One other factor that can affect performance is the ability to ‘short’ stocks. This is a technical process designed to generate profit from a stock falling in value. This could enable Dale to generate positive returns in falling markets, further differentiating the fund to the index and peer group, however this can create more volatility as losses on these positions are potentially unlimited.
Taken together, these factors can be seen in the performance over the past five years. After lagging in the initial covid affected years, FCSS then did better in the weaker recovery years as the Chinese economy struggled with low consumer confidence. However, a series of government interventions has led to a strong rally over 2024 and 2025, the latter of which FCSS has outperformed, aided by its additional gearing and focus on smaller companies, which tend to perform best in rising markets. This has led to cumulative outperformance over the long-term.
Discrete performance
Source: Morningstar
Past performance is not a reliable indicator of future results
Portfolio
The manager utilises the full capabilities of the investment trust structure with FCSS in order to capture the best opportunities from across the vast Chinese markets. This includes a high degree of flexibility on where Dale can invest, leading to a tilt towards the higher growth potential of smaller and mid-sized companies which can make up a high proportion of the trust as we show in the chart below.
Company size breakdown
In addition, the manager can use gearing or borrowing of additional capital which can amplify gains (as well as losses) as well as allowing a portion of the portfolio to be invested in private companies, which offers considerable differentiation to other funds, with a maximum allowance of 15%.
Furthermore, the manager can also short stocks, a process that enables him to benefit from a fall in a share price, as well as the flexibility to invest in the range of China-related stock markets, such as Hong Kong, as well as Chinese companies listed on US markets, which typically offer better protections for shareholders. As a result, FCSS’ portfolio is likely to look significantly different to either a passive investment in China, or other active funds. Ultimately though, each stock is chosen on its individual merits, meaning sector allocations can often vary over time, depending on where Dale is finding the best opportunities at the best valuations.
Our Verdict
FCSS provides investors the opportunity to invest in a wide-ranging portfolio of some of the most exciting Chinese firms, including both listed and private companies. As such, we believe it makes the fund a ‘one stop shop’ for investors that wish to capture the considerable growth on offer from the vast and rapidly developing Chinese economy.
In our view, manager Dale Nichols is well placed to seize on this opportunity through a well-resourced strategy, including locally based analysts, his own considerable experience and a process that has shown to be adept at identifying undervalued stocks with potential to grow over time. The ability to invest in private companies is also a standout feature, as it enables shareholders to get exposure to firms that would otherwise be off limits and potentially capturing the rapid growth phase that often occurs before companies move to the public markets. Furthermore, this is the sort of exposure that investors cannot get in a passive fund.
Key Risks
- Gearing – borrowing to increase exposure – can amplify losses as well as upside
- Bias to smaller companies can increase volatility
- The Chinese market is exposed to considerable political risks, both domestically and internationally
