Anthony Bolton Investment Guru

Just a few days after Anthony Bolton's 60th birthday he prepared for the launch of his new China Special Situations investment trust; a much hyped new fund that will use his famous value investing skills to pick companies in China that will outperform in the rapidly expanding Chinese economy. But would he be able to find value in what has become a rather popular and expensive stock market?

I was skeptical about the fund, especially as it has such high charges (for an investment trust) but just 9 months after launch in March 2010, the Fidelity China Special Situations (LSE: FCSS) investment trust was up over 27%. This was partly because the fund was so popular it trades at a large premium to Net Asset Value (NAV) - Investment Trusts usually trade at a discount. As a consequence in November 2010 Fidelity have announced an intention to issue more shares (subject to investor approval) A "rights issue". This will reduce the premium and the price for existing share-holders, but they may also be given an attractive deal on newly issued shares.

I still hold investments in China, although I tend to buy and sell as the market gyrates. In most markets I try to buy individual shares, rather than funds, so I'm more in control, but with China, Asia and other Emerging Markets in general, I feel I don't know enough about the companies to do that, so I have mostly relied on investment trusts, other managed funds or ETFs. Most of my Asian and Emerging markets investments have performed extremely well over the last few years and I have taken some profits as the market peaked, then got back in again later. These markets are very volatile and have a tendency to come crashing down again after a strong rally.

The China investment story is a very compelling one with fast growth and their economy to soon become the biggest in the world, but a lot of that story is already know by enough people to make the shares quite expensive i.e. a bit like the situation before the dot-com collapse, although of course there could be a lot more growth before anything like that happens, it's just that China is not cheap. Japan however benefits from China's growth and yet Japan is cheap because it has been such an awful investment for so long (I'm not necessarily saying Japan will go up and China will go down, I'm just getting a bit nervous about how well China has performed, to put much more money in at the moment - I did however buy into Japan, which might of course continue being an awful investment)

The main reason for being cautious about some managed funds is they do charge a lot and the only people who are getting rich are the fund-managers and financial advisors but investment trusts are usually much cheaper than unit trusts and don't pay huge commission to the financial advisors. ETFs are even better (although they are not managed by anyone so could be riskier unless you are good at timing the market) The new Fidelity China Special Situations fund is an investment trust, but it does, rather unusually, pay a commission to advisors and does a lot of advertising, all paid for out of the initial costs of setting up the trust, which is a bit naughty (and explains why so many people are being advised to buy it) There is also a hedge-fund style performance fee and a high management charge which will eat into the profits.

Anthony Bolton however is perhaps my favourite fund-manager who uses a value-based approach to choose shares. He retired from active fund-managing a couple of years ago to write music (and also to advise the new fund managers at Fidelity) but has been tempted back out of retirement to run this huge fund. He knows a lot about western markets and about contrarian value-based approach to stock-picking. He was perhaps the most successful fund manager over the last 25 years or so, but does he know all about China? China is very popular with retail investors at the moment so Fidelity (and Mr Bolton) will make a lot of money out of this new fund launch whether the fund does well or not. As an investment trust it may trade at a discount to its net asset value (NAV) causing it to drop in value, hence the point that this is a long-term investment, although it could trade at a premium as it currently is.

So after all that long rambling essay. Would I buy this investment trust? Given that I still have more than enough exposure the China, I am feeling nervous after the recent strong performance and I find the fee structure of the company a little too generous to some already ridiculously over-paid people, probably not, but if I had no exposure to China I would certainly consider it. Anthony Bolton is a very clever chap, but China is a bit of a gamble. It may do really well, but it could be a long term bet. Definitely don't put all of your eggs in one basket.

Update (January 2012): I was correct to be skeptical about Fidelity China Special Situations Fund (FCSS) and about China in general. The share price rallied at first, but this was almost entirely due to the shares trading at a premium to their net asset value (NAV) and the huge amount of media hype about the fund. Extra shares were issued due to the demand, then as the Chinese markets cooled off, from their rampant growth of recent years the FCSS share price plunged to 25% or more below the launch price and more than 40% down from the peak. This investment trust may be a good investment in future, but still trades at a slight premium to NAV and Anthony Bolton won't stay out of retirement for ever.

Update (April 2012):Anthony Bolton confirmed that he will continue to manage the Fidelity China Special Situations trust until at least 2014. He had initially said that he will run the fund to at least 2013. During 2011 the trust fell by about 30% and by around 20pc since it was launched two years ago. My initial worries about China, Anthony Bolton and this fund in general have been proved correct, but Bolton's deciding to stay on seems like good news and I shall keep watching. At some point this could be a good way to take advantage of any recovery in China... eventually.