Baba Stock – Fidelity China Special Sits set to boost unlisted exposure after record year
The company, which notably benefited from being an early investor in Alibaba ahead of its record-breaking $25bn IPO in 2014, told investors this morning (8 June) that the unlisted space in China has “expanded quite markedly and offers some excellent opportunities for patient, long-term investors”.
Fidelity China Special Situations, which has been managed by Dale Nicholls since 2014, held 7.4% of its NAV plus borrowing in nine unlisted companies as of 31 March, having added Full Truck Alliance, Venturous Holdings and Chime Biologics in the previous 12 months.
This represented an increase from 6% in six unlisted companies in the previous reporting year, and has since grown to 8.1% as of the end of May, having added a new position in Beisen.
Encouraging investors to vote in favour of boosting its permitted unlisted exposure at its 20 July AGM, the company said Fidelity International “has grown its expertise in this area both in identifying and also in valuing new opportunities and then in monitoring them as they progress to their IPO”.
“At the same time the period from investment to IPO has lengthened as unlisted companies are finding it possible to fulfil their capital needs with more rounds of capital raising pre-IPO,” it added.
“Taken together this has led us to conclude that we should have the ability to hold a greater proportion of the company in unlisted investments.”
Commenting on the proposal, QuotedData analyst Jayna Rana explained that the move into unlisted companies “has been a good one for Fidelity China Special Situations over the past decade”, initially under the management of Anthony Bolton.
“[Bolton] placed 2.5% of the trust’s assets in the company, then valued at $48bn, which went on to see the biggest IPO offering in history in 2014,” she said.
“Manager Dale Nicholls has only continued this with a clear eye for knowing where the opportunities for similar success lie.
“While, of course, there lies increased risk with investing in private companies, FCSS’s track record in the space proves the team knows what it is doing and so increasing its limit makes sense in order to capture further value.”
Record financial year
Fidelity China Special Situations recorded its highest annual NAV total return of 81.9% in the 12 months to 31 March, and a share price total return of 97.2%. This reflected significant outperformance against the MSCI China index’s return of 29.1% over the same period.
As a result, the company’s board has recommended an annual dividend of 4.68p per share, an increase of 10.1% from last year.
The trust is currently trading at a 1.6% discount to NAV of £419m, with gearing of 27%, according to Association of Investment Company data. Its discount narrowed from 8.6% at the start of the reporting year to 1.1% at the end of its reporting year.
It has provided a share price total return of 67% and 227.9% over three and five years respectively, and a NAV total return of 43.2% and 170.8% over same periods respectively. This compares to a total return of 27.9% and 110.9% over three and five years for the Morningstar China index.