Fidelity Advisor China Region Fund: The Largest Fund by Net Assets

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The Fidelity Advisor China Region Fund

The Fidelity Advisor China Region Fund – Class A (FHKAX) is the largest fund by net assets. According to the latest available data for January 2016, it had portfolio assets of $1.05 billion with a net expense ratio of 1.28%. The fund’s strategy is to invest 80% of its assets in securities of Hong Kong, Chinese and Taiwanese issuers and other investments that are economically tied to the China region.

As of December 2015, 88.7% of the fund assets are invested in China and Hong Kong while the balance of 11.3% is invested in Taiwan, Netherlands, and the United Kingdom combined. FHKAX benchmarks its performance to the MSCI Golden Dragon Index.

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Performance evaluation

The Fidelity Advisor China Region Fund – Class A (FHKAX) rose by 0.6% in December 2015 from a month prior. In the fourth quarter ended December 31, the fund was up by 8.8%. In the one-year period, it was down by 4.7%. Meanwhile, year-to-date (from the end of December 2015 to February 26, 2016), the fund fell by 15.9%.

Stock selection drove the fund’s relative success, led by picks in the consumer discretionary and healthcare sectors. However, positioning in the financial sector detracted.

Portfolio composition

FHKAX was launched in November 1995. As of December 2015, which is the latest data available, financials dominated the portfolio composition with 28.1% weight. It was followed by the information technology, consumer discretionary, and industrials sectors with 19.6%, 17.3%, and 12.4% weights, respectively. Plus, 20.2% of the fund assets are invested in defensive sectors such as healthcare, materials, consumer staples, and utilities. Defensive sectors provide a cushion in the slowing economy.

As of December 2015, the fund’s assets were invested in 94 holdings. As of December, the top ten holdings made up 32.8% of the portfolio assets and include Tencent Holdings (TCEHY) and Alibaba Group Holdings (BABA). Its other equity holdings include 58.Com (WUBA) and Ctrip.com International (CTRP).

Key highlights for investors

The Fidelity Advisor China Region Fund – Class A (FHKAX) is one of the largest China-focused funds. Although the manufacturing side of the economy is in the doldrums, the services segment appears to be growing at a low double-digit pace. Perhaps just as importantly, services now represent about half of China’s economy, and that number continues to increase every year.

There could be further volatility in the short term as China works toward a more consumer-driven economy. However, long-term opportunities are available as China’s government seems to be serious about steering a course toward meaningful long-term change for the country’s betterment.

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