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A split decision

Anthony Bolton is the stuff of legend but, says Hargreaves Lansdown head of research Mark Dampier, Fidelity has confused the issue of his retirement and set the speculation mill racing with the controversial split of the special sits fund

Anthony Bolton has become the closest thing to a legend that the fund management industry has. Despite the fact that top managers are virtually akin to football stars (but without the sponsorship), it still cannot be said that any of them have really become household names.

Anthony is probably the nearest to a household name and it has taken him 26 years although it has only really been in the last six years that there has been an explosive increase in sales in the fund.

The fund entered the new millennium at around 1bn in size, having had a more difficult time in the late 1990s when small and mid-cap value were well and truly out of favour.

Since the end of the tech boom, the fund’s investment style has been very much in fashion. This does not belittle Mr Bolton’s tremendous stockpicking ability. He has continued to add value above his style. Over 25 years, the fund has risen by over 12,000 per cent while the All-Share index is up by a little over 1,050 per cent, a testimony to his disciplined, contrarian approach.

Success has created problems which are really twofold. First, Bolton cannot go on for ever and, second, there is the question of how much he or any other fund manager can run effectively and efficiently.

On the question of size, Mr Bolton has proved this is no barrier if you are truly talented. Despite the size, the fund has risen by over 17 per cent so far this year and is 18th out of 291 funds. Fidelity also has wonderful resources, with 31 portfolio managers and 58 pan-European analysts at Mr Bolton’s disposal.

Have Fidelity’s new proposals for the fund answered these two questions?

Its proposals recommend splitting the fund in two some time in the middle of next year, with Anthony running both funds until the end of the year, when he will take over one fund while a different manager takes over the other fund.

Anthony will continue until the end of 2007 when he will retire from running funds but will carry on as a mentor for Fidelity fund managers. In the meantime, the initial charge has risen in an attempt to slow down flows into the fund. This is certainly an innovative way to answer the problems but it does seem to me to be overly complicated.

Let us look at the fund size question first. Anthony continues to believe that the fund is manageable at present and is not sure when it will suddenly become unmanageable. But, in splitting it into two, we still have two very big funds that they would rank within the top 10 of the biggest funds in the industry.

So has it really changed that much? Let us fast-forward. If the funds are highly successful and end up attracting more money, will they be subdivided again?

From a unitholder’s point of view, there was only one question initially – who will succeed Anthony Bolton? Now they have a number. When the fund is split into two, will Anthony remain with the special situations mandate? I have a strong feeling that the answer to that is no.

It is suggested that the other mandate will be the pan-European one, which would certainly suit Mr Bolton. It will also suit Fidelity, as it would stop people switching from the new mandated fund to the special situations Fund. But the question remains, who will take over from Mr Bolton when he does eventually retire at the end of 2007? Well, we will not know that until probably mid-2007.

If Fidelity thought the fund was too big for Anthony Bolton’s successor, why did they allow it to grow so big? Why could they not start putting the brakes on around a year ago simply by raising the charges and raising the minimum? It has certainly left plenty of room for speculation.

To my mind, Fidelity had already successfully managed the question of Anthony Bolton’s successor in the European field by the appointment of Tim McCarron, giving the marketplace some six months to adjust to this new idea.

Mr McCarron has carried on doing a superb job on the European fund so why is the UK special situations fund so different? Unitholders and advisers have been left with a complicated proposal rather than a straight- forward one.

Once again, financial services have shown their ability to take something simple and make it more complicated and double the admin burden for advisers at a stroke.

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