The net asset value of Anthony Bolton’s Fidelity China special situations investment trust has fallen by 18.5 per cent in the year to March 31.
In the closed-end fund’s final results for the year to March 31, Bolton says although there was a recovery in the second half of the year, share price had only increased by 7 per cent.
The fund manager said market had been difficult in the past couple of months.
He says: “It is now just over two years since the launch of Fidelity China Special Situations plc and I admit I am not where I had hoped to be.”
Bolton claims the bank borrowings had impacted the impact of gearing and a “relatively high exposure to more volatile medium and smaller companies” in a 18-month period of “disappointing” performance.
However, Bolton says if he was not confident his investment strategy would outperform the MSCI China index in the medium to long-term period he would not be pursuing it.
The fund manager says he remains confident in his conviction in the consumption and service sectors, while he believes his focus on private medium and small-sized businesses would benefit from China’s long-term prospects.
He says his plan to seek out business models simliar to those in the UK and continental Europe would also benefit the fund, as, if run well, these companies should perform strongly for between five and 10 years as they are at the early stage of development in China.
Bolton says there are also “many bargains” to be found among smaller stocks.
The Fidelity star manager says he is not convinced growth estimates for China will be in line with consensus, which expects growth of between 8 per cent and 8.5 per cent for the year.
“To date the road has been hard but my enthusiasm for this amazing country remains unabated”
He adds: “When I look at economic growth from a bottom-up perspective, I get to a somewhat lower figure – although it’s possible that we may never see lower numbers published.
“Yes, consumption will remain strong, but fixed asset investment, particularly residential property, and exports are likely to see significant reductions in their growth rates. I am not in the ’hard’ landing camp – which generally expects growth of 5 per cent or less – but I am below the consensus.”
Bolton says one of the bigget medium-term challenges will be the country’s transition from a poor society to a wealthier one.
“To date the road has been hard but my enthusiasm for this amazing country remains unabated,” he says. “Every time I visit mainland China my conviction about it increases and I return more impressed about the investment opportunities there.
“I strongly believe that China is not the house of cards some have suggested and it is not about to collapse. Of course, like most places it is not risk-free.”
Bolton says those “who stick the course in China will be amply rewarded”, adding that valuations remain at near ten-year lows.