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Bolton’s Fidelity China special sits reduces gearing

Anthony Bolton’s Fidelity China Special Situations investment trust has reduced its gearing from 125 per cent to 117 per cent, while stock markets around the world remain volatile.

Gearing magnifies the performance of an investment trust. It is therefore typically upped when the manager is bullish on the investment universe, which is not without risks because it exacerbates losses in falling markets.

A factsheet dated June 30 shows gearing of 125 per cent, but the latest numbers published on the website of the Association of Investment Companies show net gearing of 112 per cent and gross gearing of 117 per cent.

Winterflood Investment Trusts warned yesterday that investment trust discounts are at risk of widening out.

Bolton’s trust saw its discount temporarily widening from 2.1 per cent at the end of yesterday to 9.2 per cent last night, although it bounced back to 1.7 per cent. Experts say it is no surprise that the discount has shown short-term volatility amid difficult market conditions, but they expect it to widen in the long term.

Performance has been disappointing since launch, owing to a weaker than expected Chinese market but also the trust’s underperformance. According to Morningstar, Bolton (pictured) lost 18.9 per cent since launch in April last year, compared to a loss of 13.3 per cent of the MSCI China.

“It is now clear that the fund’s first period has been one of two halves,” Bolton wrote in a recent statement issued together with the preliminary results for the period to March 31.

“The second half of the period and performance since the period end has been disappointing for investors and me personally.”

Bolton also admitted that he suffered losses after two investments in US-listed Chinese companies were accused of fraud.

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