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Special sits’ size restricts stockpicking

The sheer size of Fidelity’s 6.5bn special situations fund makes fund manager Anthony Bolton feel restricted in his stockpicking by and he says he is constantly pushing against the 20 per cent limit on overseas stocks.

Investment Management Association guidelines stipulate that 80 per cent of a fund’s investment allocation needs to be within its core investment area, which is the UK in the case of Fidelity special sits, but Bolton told the Securities and Investment Institute conference last week that he makes full use of the 20 per cent non-UK opportunities for the fund.

He said: “I am required to be 80 per cent invested in the UK and that is a constraint with a big fund. I am 2bn bigger than my nearest competitor fund. I am constantly pushing against the 20 per cent barrier.”

On March 31, Bolton’s non-core asset allocation in the special sits portfolio included 13 per cent of the fund in Europe, 3 per cent in Asia/ Pacific and 1 per cent in North America.

He told the delegates at the SII conference: “With the exception of China, I look at them from the top down. I got interested in China a couple of years ago when I gave up the European funds and I wanted one new area to invest in.”

Bolton’s five criteria for picking stocks1: Industry anomalies

Examples: British Land, NTLBolton says: “I look at the cheapest stocks in an industry to see if they deserve to be so cheap. British Land look a good bet now they have changed their management.”2: Turn-round or recovery situations

Examples: Mothercare, ITV”A change of management at Mothercare has led to a strong recovery.”3: Unrecognised growthExamples: William Hill, Cairn Energy”I like to find a business that has unrecognised growth. Cairn Energy now has the biggest oil field in onshore India.”4: Attractive assets

Examples: Tesco, Land Securities”Land Securities has very strong asset backing.”5: Corporate potentialExamples: Rank Media, GCAP Media”I look for stocks that have a greater likelihood of merger and acquisition activity.”

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