Bolton's China Fund Comes Good

After a troubled start, Anthony Bolton's Fidelity China Special Situations is outperforming the benchmark and under the stewardship of new manager Dale Nicholls is on a promising path

Emma Wall 20 November, 2014 | 9:52AM
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When Fidelity China Special Situations (FCSS) was launched in 2010 fans of the veteran Fidelity fund manager Anthony Bolton, rushed to pour their cash into his new venture. Bolton had at the time an unrivalled reputation as a UK equities investor; his Fidelity Special Situations fund turned an investment of £1,000 into £148,200 during his 27-year tenure.

But the new trust got off to a bad start, losing 5% in its first year, and a staggering 26% in year two. John Owen, the chairman of the fund, blamed the trust’s overweight bias to small and medium sized companies which had not fared well in the years following the global recession.

In September 2011, the fund was forced to buy back 350,000 shares. The fund manager also fell foul to fraud, investing in two companies which turned out to be worth significantly less than he was led to believe.

Bolton defended his strategy at the time, saying in June 2012: “I must stress that if I did not believe my strategy could outperform the broader MSCI China Index in the medium to long term, I would not be pursuing it. I maintain my view that the current backcloth of falling inflation and a slow loosening of monetary policy should be a favourable one for the stock market.”

A year later he announced his retirement - taking another 10 months to hand over the reins to current manager Dale Nicholls. Since Bolton announced his intention to handover the fund’s fortunes have significantly improved, gaining 27% in 2013 and up 15% so far this year.

Commenting on yesterday’s most recent six month results Owen, said that the outperformance was generated by investment in companies reflecting ‘new’ China, such as Alibaba (BABA) and BitAuto, which benefit from the shift to e-commerce and the reforms that are being introduced in China.

“We believe that the effects of these positive changes will encourage investors to see China in a new light and to invest in the world’s second largest economy measured by GDP,” he said.

Morningstar Analyst’s View by Szymon Idzikowski

It looks like the theme that Bolton initially intended to play a few years ago is finally coming through. Having a quick look at the fund and the attached commentary, it is pretty much the new China names that give exposure to domestic consumption and servicing, driving returns.

They have definitely benefited from the government’s efforts to rebalance the economy towards consumption and long term sustainable growth model. It is encouraging to see the manager, initially Bolton and more recently Nicholls, has stick to his conviction even if initially it proved to be painful.

But likewise it is good to see that more recently Nicholls has been taking profits from names that benefited from the rally and ended up trading at stretched valuations. It shows prudent approach to the portfolio management.

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.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Alibaba Group Holding Ltd ADR87.69 USD0.44Rating
Fidelity China Special Ord238.17 GBX1.78Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar