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Time is right for Bolton China trust

Fidelity – China Special Situations

Type: Investment trust

Aim: Growth by investing in Chinese companies

Minimum investment: Lump sum £2,500

Investment split: 100% in Chinese companies

Types of share: Ordinary

Isa link: Yes

Closing date: April 5, 2010 for online 2009/10 Isa applications, thereafter shares available on the secondary market

Charges: Initial 3.5% shares bought on secondary market within a Fidelity Isa, annual 1.5%, performance fee 15%

Commission: Renewal 0.5% on Isa investments

Tel: 0800 028 4489

Fidelity’s China special situations is an investment trust run by the firm’s veteran star fund manager Anthony Bolton from Hong Kong. It will invest in equities, equity related and other securities issued bycompanieslisted in China or Hong Kong, and in Chinese companies listed on other stock exchanges.

Looking at the ways in which this product is good for IFAs and their clients. Flowers McEwan director David Flowers says: “This is a typically well put together package from Fidelity. Its familiar easy to read marketing literature, with a ‘we are all good friends on this investment journey’ style, draws you into the game.

“The offering is fronted by the genial Mr Bolton who is, apparently, deferring his retirement to bring us this exciting opportunity. Just to make sure we know how serious Fidelity is, Bolton is relocating to Hong Kong to give the management of this fund his personal attention.”

Flowers thinks there is a lot of sense in exposing a portfolio to the Chinese story. He says China is predicted to overtake Japan as the world’s second largest economy before too long. “By way of example, China has overtaken the US as a car market. With few other alternatives around, Fidelity’s good name provides a warm cosy feeling if you are risking an entry into the relative unknown of China.” says Flowers.

He observes that as an investment trust not a mutual fund, there is a deadline for the initial public offer. At the time of publication, Flowers feels it will be cutting it fine to get in before the deadline, although online Isa applications will be available until April 5. However, he says some advisers may have to wait until the trust lists on April 19 before investing.

Assessing the charges Flowers says: “They are reasonable for a fund like this but there is a nifty performance fee which will drag down performance if it does well.”

Turning to the potential drawbacks of the trust Flowers says: “A combination of the investment target, China, and the use of an investment trust makes this scarily volatile. Of course the product provides a warning to invest for the long-term of five years, but I am not sure that is either long enough or enough of a warning.”

He thinks the usual challenges of investing in China such as liquidity, corruption, and a market that is not really free on top of the investment trust structure’s potential for discount as well as a premium on the share price could add up to a long wait for a positive return.

“The fund can leverage up to 30 per cent of its value. So if you didn’t think it was a tad on the risky side before, you should be convinced now,” says Flowers.

He adds that the performance fee could add 1.5 per cent to the existing 1.5 per cent annual management charge. “These charges, along with another 0.3 per cent in costs, could leave investors nursing a 3.3 per cent annual charge. That would only arise on good performance but it still rather takes the edge off the success story,” he says.

Scanning the market for possible competitors Flowers says: “Barings has a long track record in the region and tons of money under management in China already. So if you want tried and tested, with no performance fee, Barings is the option.”

Summing up, Flowers says: “I see Fidelity China special situations as a well timed product launch as people begin to emerge from a credit crunch imposed hibernation. It is not for widows and orphans, but perhaps a juicy portion of a bigger portfolio.”


Suitability to market: Good

Investment strategy: Good

Charges:     Average

Adviser remuneration: Average

Overall 8/10


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