April 16, 2012 1:26 pm

Bolton pledges to stay at China fund

Anthony Bolton has vowed to remain at the helm of Fidelity’s China Special Situations trust for at least another two years after a “disappointing” performance to date.

Mr Bolton will step down from the flagship fund no earlier than April 2014, he said on Monday, extending his minimum tenure by a year. “A factor in my decision was the fact that it has not done well,” said Mr Bolton.

He added that he was disappointed in the fund’s performance but still saw great value in many Chinese equities.

Mr Bolton’s China Special Situations fund raised £460m when it launched with much fanfare on the London Stock Exchange in April 2010. Since then, the net asset value of the fund has dropped 16 per cent, underperforming the benchmark MSCI China index by almost 10 percentage points.

Mr Bolton said the fund has underperformed because it held a larger than usual exposure to small and medium-sized Chinese stocks, the prices of which have fallen much more sharply than the broader market. The fund’s decline was also amplified because it used debt to acquire part of the portfolio.

Chinese stocks have been among the worst hit in the world over the past year after a series of corporate governance scandals added to fears about a slowdown in the Chinese economy.

Although they constituted just a small part of the fund, China Special Situations suffered from its exposure to several Chinese companies that had listed on US stock exchanges via a process called a reverse merger, or backdoor listing, which allowed them to bypass the scrutiny of an initial public offering.

Over the past two years, dozens of these reverse merger companies have been accused of fraud, seen their auditors resign and been delisted from US exchanges. Mr Bolton’s fund had been exposed to at least two of these companies.

Shares in the fund were on Monday trading at a 6 per cent discount to their net asset value, a sign that the market has lost some of its enthusiasm for Mr Bolton’s stockpicking skills. After its launch in 2010, the fund traded at a premium of as much as 13 per cent to its net asset value.

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