Fidelity China Special Situations Investment Trust: Performance remains poor as guru targets small firms

| November 18, 2012 | 0 Comments

Richard Dyson, Financial Mail On Sunday

10:53 EST, 18 November 2012


10:53 EST, 18 November 2012

Fund Focus

China’s leadership change has reminded Western investors of the inscrutable processes that govern the world’s second biggest economy.

Tens of thousands of small British savers have exposure to China, often via high-profile funds such as Fidelity China Special Situations investment trust.

Attracted by the country’s astonishing transformation and economic growth, many have found these factors do not readily translate into shareholder rewards.

FCSS’s latest half-year results, published last week, continue to disappoint. Original investors have just 77p for every £1 invested at the April 2010 launch.

Most losses were accrued early last year, but the performance has remained poor.

The fund has significantly underperformed the market over the past three and six months. Its manager, investment guru Anthony Bolton, is a China enthusiast and personally invested in the fund.

He says underperformance reflects the fund’s tilt toward medium and smaller firms, which have trailed the wider market. But Bolton says he ‘still believes exposure to smaller, private companies rather than larger, state-owned enterprises will prove more rewarding.’

Anxiety about the new leadership has not helped markets and in the background is China’s gradual slowdown from breakneck to more moderate, ‘higher-quality’ growth.

Bolton questions much economic data but concludes the economy is ‘stabilising at a growth rate of around seven per cent’ and that this quarter ‘will probably mark the low’.

Fund Focus

He remains wedded to the argument that China is switching from export growth toward domestic consumption and has built the trust’s portfolio accordingly.

Bolton acknowledges setbacks but remains confident, saying: ‘Investors have needed more patience than I anticipated, but I still believe they will be rewarded. There is the prospect of the new government embarking on an exciting decade of deregulation.’

The performance is embarrassing for Fidelity and leading broker Hargreaves Lansdown. Both plugged the fund heavily at launch.

Several commentators suggest that now – when the trust is out of favour and the marketeers are silent – would be a better time to invest.

Its shares are trading at a four per cent discount to their underlying investments’ value.

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