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Analyst View: Fidelity Cuts Fees

Investors in Fidelity China Special Situations will have fees cut from April 1 this year. The annual fee on Fidelity Japanese Values has also been reduced

Jackie Beard, FCSI 20 March, 2014 | 9:35AM

The news that Fidelity has reduced the fees at two of its investment trusts is a welcome one — it follows a slow but steady drip of fee reductions at closed-end funds since the introduction of the Retail Distribution Review. We have long held the view that Fidelity as an asset manager could pass on economies of scale to its investors, given the vast amount of assets it manages globally — the fact that two investment trust boards have managed to make this happen is good news for their shareholders.

At Fidelity Japanese Values (FJV) — which carries a Morningstar Analyst Rating of Neutral — the fund’s annual management charge is dropping by 0.15% — nonetheless, the fund’s small size means the ongoing charges for 2012 were some 2%. It’s a retrospective change so from 1 Jan 2014 that lower rate will apply and it will make the fund a shade cheaper than its Morningstar category peers, but it’s still not cheap outright.

At Fidelity China Special Situations (FCSS), the changes are more pronounced. Firstly, the annual management charge has been reduced to 1% from 1.2%.  This follows an earlier reduction in April 2013 of 0.3%, so we’ve now seen the AMC cut by one-third since the fund’s launch in 2010. However, the more significant change is in the structure of the performance fee. The maximum performance fee that can be taken has been cut by one third, to 1%; further, the ability to carry forward any excess outperformance has been scrapped. That means incoming manager Dale Nicholls won’t inherit a credit of outperformance when he takes over the portfolio, given the strong year the fund is having (its financial year-end is 31 March), and Fidelity won’t be taking a performance fee that has been generated by Anthony Bolton after his retirement. So Nicholls will rightly be standing on his own two feet when he takes over on 1 April and any performance fee that triggers from hereon will be a result of his performance — and his alone.

For sure the performance fee at FCSS will be a hit for shareholders and we’ve yet to see the impact on the fund’s ongoing charges, but we like the moves the asset manager and boards have made and believe it’s a solid step in the right direction.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Jackie Beard, FCSI

Jackie Beard, FCSI  is Director of Manager Research Services, Morningstar EMEA

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