This week’s AGM of Fidelity’s China Special Situations fund proved to be an uncomfortable experience for the 62 year old veteran investor Anthony Bolton. He is famous for delivering annualised growth of 19.5% over a 28 year career (1979-2007) managing the UK Special Situations fund, turning a £1,000 investment into £147,000.
In 2009 Bolton surprised everyone with a return to fund management from retirement moving in April 2010 to Hong Kong to manage the newly created investment trust, Fidelity China Special Situations PLC. The trust was fully subscribed at £460 million on issue in April 2010 and was followed up by a second share issue in February 2011 to meet feverish investor demand, raising £167 million.
After a strong start in 2010 where it rose above its issue price of £1, it slumped in 2011. As well as declining sentiment in investing in China a series of poor investments in Chinese companies listed on the Canadian and US exchanges as evidenced by the bankruptcy of timber company, Sinoforest (and which caught out no less a hedge fund luminary than John Paulson – “Mr Subprime” too). The trust currently trades at 71p, a decline of 25% over the last year, but still valuing the trust at £471 million. It has underperformed the MSCI China index by 6-7% over the last 18 months.
At the AGM Bolton said that the risk of a Chinese hard landing is lessening and that he still believed in the key themes of consumption and services and that the growing Chinese middle class would produce positive returns for investors, “With inflation less of a concern, China can continue to stimulate the economy.”
With the benefit of hindsight, investors should always have been wary about Bolton and China. Firstly his focus was always the UK and Europe during his career and investing in the Asian region is very different. Corporate standards are still well below that expected in the West and a degree of naivety in terms of transparency and quality of accounting practices seemed to have been a shock for Bolton. He should have retired gracefully back in 2007 instead of going on this Chinese adventure.
After hitting the lows around 70p, he may well conjure up a revival but the China Special Situations fund seems to have resorted to buying back shares in an attempt to flatter its performance (350,000 so far). Q2 earnings from Caterpillar (construction and mining equipment) and Vale (iron ore) illustrate a strong slow down in the Chinese economy, with Caterpillar forced to export equipment from China to other emerging makets. In other words, the fund is going to struggle to offset the macro economic slow down. The advice….stick to what you know!
Contrarian Investor UK