Get cheap China exposure with Fidelity

Investors who piled in at launch will be disappointed with their share price gains to date of 4.5 per cent. Despite Mr Bolton's credentials, the fund's performance was feeble at first, compared with some of the better-performing China funds. But in his last year of managing the fund, Mr Bolton has posted decent returns of 21.75 per cent. However, the tables are about to turn again, and there are several potential reasons to invest.

On 1 April, Anthony Bolton will retire, and Dale Nicholls will take over as fund manager. Mr Nicholls is not a household name like Mr Bolton, but he has a strong track record managing Asia-Pacific regional portfolios at Fidelity for the last decade. Out of 53 managers in his peer group (Asia Pacific including Japan) ranked on Citywire over a five-year period, Mr Nicholls is ranked number three.

Mick Gilligan, head of research at Killik & Co, does not expect Mr Nicholls to make wholesale changes to the portfolio. He says the portfolio is likely to maintain a small- and mid-cap focus, as well as a current bias towards consumer and technology-related areas of the market.

IC TIP RATING

Style: Growth

Risk: High

Timescale: Long term

This investment trust provides exposure to an unconstrained portfolio of companies focused on the long-term growth potential of China. It's only suitable for those investing for the long-term (at least five years or more), and who are willing to accept risks and price fluctuations, as the Chinese stock market can be volatile and this fund is no exception.

Its benchmark is the MSCI China index, but 43.1 per cent of the fund's equity holdings are in Hong Kong, with a small amount in the US (4.7 per cent) and the UK (2.7 per cent). It invests in everything from giant to micro companies, with 20.43 per cent of the portfolio in small companies and 3.45 per cent in micro companies, which ramps up its risk rating.

Its net expense ratio is 1.8 per cent, which is not cheap, but is reasonable for an emerging markets fund. The board announced last week that, from 1 April, the management fee will be reduced from 1.2 per cent to 1.0 per cent a year which will make it a snip cheaper than its peers. The maximum performance fee that can be taken has been cut by a third from 1.5 per cent to 1.0 per cent, and outperformance will no longer be carried forward into future periods. This means Mr Nicholls won't inherit a credit of Mr Bolton's recent outperformance when he takes over the portfolio.

China funds in general are looking like promising long-term investments for your portfolio. Disappointing Chinese economic data could lead the authorities to take measures to boost growth much sooner than anticipated, creating a potential opportunity for Chinese equities to rally in the near term, according to Stephen Cohen, chief investment strategist for iShares EMEA.

"As the Chinese authorities attempt to clamp down on the build up in debt to move from an investment-led to a consumption-led economy, we expect to see increasing levels of volatility. As such, there could soon be an opportunity for Chinese equities to perform in the near term on the prospect of possible policy action," he said.

The reasons for buying this fund now go beyond its reduced fees. It is trading at a discount of 11.53 per cent, a far cry from the 10 per cent premium the shares were on when we had it as a sell recommendation in 2010. And looking at its new manager's past performance, you'd be much better off with an investment trust like this than with a fund simply tracking a China index. Buy.

Fidelity China Special Situations performance data

Source: Morningstar

Source: Morningstar