Riding high...fund boss who knows the Far Eastern markets inside out
DALE Nicholls has almost completed his third year at the helm of Fidelity China Special Situations, a £1billion investment trust launched with great fanfare in April 2010.
His appointment has coincided with a bout of strong performance for the trust. Its share price is up nearly 90 per cent since he took over, having trodden water under the initial stewardship of Anthony Bolton, at the time considered one of the UK’s best investment managers.
Though Nicholls is modest enough to acknowledge the great platform left by Bolton – and that timing has worked in his favour – there is no doubt that the 49-yearold Australian has licked the trust into good shape.
Unlike Bolton, who moved to Hong Kong to run the trust having spent his life focusing almost exclusively on UK stocks, Nicholls has worked most of his life in the Far East – Tokyo, Singapore and now Hong Kong. He has also run the £1.7billion Fidelity Pacific fund for the past 15 years. In other words, he knows Far Eastern stock markets inside out.
‘It was a well-planned transition,’ he says. ‘I worked with Anthony for 12 months and all the changes that were made we agreed upon. Valuations have moved in my favour.’
Nicholls has fastidiously upheld the trust’s initial objectives. It remains heavily invested in smaller companies, with market values below £1billion, and Fidelity uses its analysts across the region to bring suitable stocks to his attention.
All the time, Nicholls is looking for ‘mispriced companies’ – those whose worth is not reflected in their share price.
‘It is about finding these companies before anyone else,’ he explains. ‘Most mispricing occurs in stocks that other analysts do not follow because their market capitalisations are too small to appear on their radar. My job is stock picking and whatever sentiment is out there in the wider market, there will always be lots of opportunities to find underpriced stocks.’
The fund’s strong bias towards consumer stocks reflects the shift in China’s economy from one dependent on exports for growth to one serving the needs and wants of a growing middle class with money to spend.
Among his 150-odd holdings is Chaowei Power, one of two firms that dominate the supply of batteries used in powering China’s 200million electric bikes.
He says: ‘Chaowei supplies a huge market. Not only is the demand for new bikes and batteries strong, but these batteries also need replacing. It has the scope to increase its prices. Despite all this, it has a market value of just £1billion and its shares are undervalued.’
Like all the firms he holds, Nicholls meets Chaowei’s management regularly. Indeed, he meets at least two companies every day.
‘Interacting with management is key,’ he says. ‘Not just the bosses of companies I already hold but those whose companies I am thinking about investing in.’
Nicholls accepts that China is not without its problems. Its mountain of debt – more than 250 per cent of GDP – is an issue, as could be US President Donald Trump’s more protectionist stance on global trade, threatening China’s exports. Yet he believes China’s new annual economic growth target of 6.5 per cent is an ‘important nuance’ and a positive. ‘What I love about investing in China is that it is an attractive stock picker’s market. There are winners and losers. My job is to find the winners.’