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IFAs split on sits charge

Matt Goodburn finds mixed feelings among advisers after Fidelity lowered the initial fee on Anthony Bolton’s fund

Fidelity is lowering the initial charge on Anthony Bolton’s special situations fund from 5.25 per cent to 3.5 per cent, putting it back in line with Jorma Korhonen’s global special situations fund and most of the rest of its retail fund range.

The fund firm says it introduced the higher charge on the then 5.4bn fund in September 2005 as a temporary measure to stem inflows in the months before it was split into global and UK components.

It argues that the size of the fund is less of an issue now it has been split into two 3bn components.

Fidelity also points out that the higher initial charge was not applied to inflows to the fund across the board, for example, it was not imposed on Isa money.

Communications director Richard Miles says: “The higher initial charge only applied to unwrapped investments and was a mechanism to slow inflows to the fund pre-split.

“The charge has now done its job and the fund is now half the size. Barring an act of God, we can still offer investors 14 months of certainty of Anthony Bolton running investors’ money. Not many fund houses can give their investors that sort of guarantee and many cannot guarantee who will be running their funds next week. Anthony is still enjoying running money day to day and is as committed to it as ever.”

However, Chelsea Financial Services managing director Darius McDermott believes the group has been irresponsible in lowering the initial charge before revealing who Bolton’s successor will be.

He argues that the initial reason for splitting the fund was because it had grown so big and believes it should not be looking to encourage inflows at a time of uncertainty over the future stewardship of the fund.

McDermott says: “I am amazed that it has done this. Fidelity has a huge retail following from the public, as well as from IFAs, so the fund could be up to 4bn in a year’s time. It is irresponsible when we still do not know who will take on the fund.

“It let the fund get too big and had to take drastic action. Now it is removing the disincentive to go into Bolton’s fund before letting us know who the manager is. It looks like it is just trying to cash in on Anthony Bolton and encourage as much money into the fund as possible before he leaves.”

McDermott says at the Fidelity dinner last June, where a few leading intermediaries were introduced to global special situations manager Korhonen for the first time, the company said it was keen to promote the global fund and would not seek to attract new money to Bolton’s side of the split.

Other intermediaries are happier with Fidelity’s move and trust it to chose the right manager when the time comes.

However, this does not guarantee new flows into the fund from intermediaries, even if members of the public might still follow the fund.

Michael Phillips proprietor Michael Both says: “I am prepared to give Fidelity the benefit of the doubt on this one although I would not now tell clients to pull money out of the global fund to put it back into Bolton’s.”

Both says he is prepared to give Korhonen at least six months at the helm of the global special situations fund before assessing whether it might be time to switch money out of the fund and says there are a number of good alternative UK special situations funds to invest in.

Dennehy Weller managing director Brian Dennehy is unimpressed with the move, however. He says the recent performance of Bolton’s fund has been underwhelming and says it has taken a further hit recently because of its heavy weighting in online gambling stocks.

Dennehy says: “It is interesting that Fidelity should lower the charge when performance is beginning to dip. If it was holding up, people would forgive and forget and move on.

“But Fidelity will not talk to you about what stocks it holds and you have the shenanigans of who the new manager will be so I do not think any intermediary should be recommending it.”

Dennehy thinks upheaval at a senior level at the group may not have helped the firm’s image recently and, combined with recent relative underperformance, may count against it.

He says: “You only have to look at the coverage in the national papers recently to see that the group’s reputation has waned considerably recently. It has some problems in its hierarchy and the fund has been one of the worst performing mega-funds in Europe in the previous two months.”

Despite a lot of negative sentiment from some intermediaries, Hargreaves Lansdown head of research Mark Dampier is sanguine about Fidelity’s decision and believes that people are well aware of the situation with the fund and can make their own decisions.

Dampier says: “Fidelity has flagged this situation quite well. Anyone who is unaware of what is happening with the fund must have had their head in the sand over the last few months. Fidelity is a great marketing machine and there is no way that it would lie down and let the money roll out of the fund.”


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