Is It Time To Ditch Anthony Bolton?

Published in Investing on 3 August 2012

It's been a bumpy ride for FCSS shareholders...

I wonder whether Anthony Bolton regrets coming out of retirement to stake his reputation on China? Only one man can answer that question, so let's try this one instead.

I wonder how many investors regret joining him on his China travels? Plenty, I would imagine.

It has been more than two years since the fund management legend launched investment trust Fidelity China Special Situations (LSE: FCSS) to great fanfare, and it has been a bumpy ride.

Fidelity China Special Situations has fallen a jolting 26% since launch in April 2010, compared to a 14% drop in its benchmark MSCI China index.

Is it time to ditch Anthony Bolton?

Bolton's wanderings

This week has delivered yet more bad news for Bolton. After meeting the great man, Simon Elliott at investment trust analysts Winterflood slammed his investment process, warning the £640 million fund is too aggressive for most investors. "Although we would expect the fund to perform strongly in a bull market, due to its gearing and mid- and small-cap bias, we would question its suitability for the retail investors that make up the bulk of its shareholder base."

Worse, researchers in the Hong Kong-based team are too thinly spread. "Only half of the portfolio is covered by Fidelity's main group of analysts with the remainder covered by a single, dedicated small-cap analyst."

The lack of "sell side research... could also explain some of the stock specific difficulties that Mr Bolton has encountered", Elliott said. He also warned that the fund's use of hedging provides a layer of complexity and dilutes its investment message.

Talk about kicking a man when he's down.

I knew I was right

At least I was graceful enough to kick Bolton when he was up. In March 2010, with investors queuing up to climb on board Bolton's China Express, I warned that Bolton should have quit while he was ahead.

I said he was taking a big chance, backing the China bubble. The glory days of rampant China stock market growth were behind us, I cried, and this was the wrong time to launch such a high-profile fund.

And an expensive fund, with an annual fee of 1.5% of net asset value, pricey for an investment trust, plus a 15% performance fee for any returns more than 2% above the MSCI China Index.

At least investors won't have to worry about paying that.

Bolton going cheap

I wish I had been wrong. By all accounts, Bolton is a wise and gracious man. The investment trust sector could do with a few superstars, to raise its profile.

But it always felt to me like the wrong fund at the wrong time, possibly, with the wrong man.

Now you can even buy Bolton at a discount of -4.5%. That's a bit of a comedown, for a trust that initially traded at a premium of around 5% to net asset value.

No happy landing

Bolton could bounce back. He has until April 2014 to do so. That's his pre-announced retirement date, which he has postponed for a year, as he tries to salvage something for his investors.

He could be swimming against the tide. China's economic growth fell to a three-year low of 7.6% in the second quarter. In July, manufacturing output grew at its slowest rate in eight months.

As I wrote in June, a China hard landing will destroy your portfolio. It could destroy Bolton's reputation as well. He doesn't want it to end this way, and neither do I.

Time isn't on his side

I can't imagine anybody wanting to invest new money into this fund right now. It will take time to turn it things around, and time is the one thing Bolton doesn't have.

Winterflood's Elliott says JP Morgan's Chinese investment trust, launched in 1993, is a better bet for most investors. The £123 million fund has returned 18% over the past 12 months, against a 23% drop for Bolton. It also has a lower annual management fee of 1%, although it also claims 15% of any outperformance for itself (a nasty habit I wish funds could kick).

JP Morgan is also trading at a wider discount, of -11.7%.

Last ditch

Scottish Oriental Smaller Companies (LSE: SST), from Far East specialists First State, is my favourite investment trust in this sector. It has served me very well over the last five years, growing 108%, although growth has been zero over the past 12 months.

I don't think China is a place for trackers. There is too much state-owned dross, run for the benefit of the Chinese authorities rather than investors, and you don't want to passively buy them all with a tracker.

I would have liked Bolton's comeback to end on a high, but I've been sceptical from the start. Is it time to ditch Anthony Bolton? I fear it is.

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> Harvey holds shares in Scottish Oriental Smaller Companies. He doesn't own any other investment mentioned in this article.

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MunroMan 03 Aug 2012 , 12:39pm

More evidence to demonstrate that alpha does not exist.

LastChip 03 Aug 2012 , 4:16pm

I said at the time of launch I wouldn't touch it (one of my better calls) and clearly, I'm grateful I didn't.

To my mind, if you're going into (effectively) emerging markets (and recently, I've dipped my toe in), in my view you need a much wider geographical spread.

These funds will be volatile and sometimes, one countries performance can oppose anothers, giving a much gentler ride. If you can't stomach a 30%+ fall, don't go on the ride - simple as that.

It was a launch based on reputation and very little else. Whether he will manage to recover any of the fund (or his reputation) is very much down to world market performance over that time scale. Personally, I wouldn't want to put money on it.

compound200 03 Aug 2012 , 6:24pm

give it 3/5 years

goodlifer 03 Aug 2012 , 11:48pm

Is It Time To Ditch Anthony Bolton?

Better late than never.

JohnnyCyclops 04 Aug 2012 , 3:40pm

I keep remembering I bought this for the long-term 5 year view. I averaged down last year and currently sitting on ~10% shortfall, 1 year down, 4 to go. Of course, that assume it outperforms others, or performs strongly, over those 5 years. Choices choices. Cut & run, or stick & stay. May just cash out if it gets back to breakeven for me.

rober00 06 Aug 2012 , 4:52pm

"give it 3/5 years"

Pity Bolton will not be there for that long!!!

Some might say that's good thing.

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