Winterflood Investment Trusts has issued concerns over Anthony Bolton’s Fidelity China Special Situations trust, questioning its suitability for retail investors
The £482.2m trust has underperformed its benchmark since launch in April 2010, with its net asset value falling 23 per cent compared with the 14 per cent decline seen in the MSCI China index.
Bolton has described the underperformance, which has been attributed a bias to small/mid caps and the trust being geared in a falling market, as “disappointing”.
In a note stemming from an analyst meeting with Bolton last week, Winterflood says: “We have increasing concerns with this fund, not all of them centred on its disappointing performance.”
Winterflood says the fund’s level of gearing – which stands at about 20 per cent – adds “substantial risk” to the portfolio. Meanwhile, the manager’s use of hedging creates complexity around the fund and dilutes its investment message.
Furthermore, the analyst highlights the trust’s stock analysis as another area of concern. Half of the portfolio is covered by Fidelity’s main analyst group while the remainder is overseen by one dedicated small-cap analyst.
“Although we would expect the fund to perform strongly in a bull market, due to its gearing and mid/small cap bias, we would question its suitability of this fund for the retail investors that make up the bulk of its shareholder base,” Winterflood says.
Last week, Numis said it would back Bolton to turn the investment trust’s performance around, but warned it was “not for the faint hearted” with its structural gearing and bias towards small caps.
Fidelity declined to comment.