This surprise statement came after the investment trust got a flurry of attention yesterday following news Bolton had committed to run it until at least April 2014.
Currently the fund is trading at an 8% discount, which Gilligan said is a fair reflection of the higher risk nature of the portfolio and the relatively short timeframe of the manager’s remaining tenure.
He does not dispute that Bolton’s presence at the helm of the China Special Situations Fund helped to ensure a healthy capital raise at inception and also helped to maintain a premium rating for the first 15 months of its existence.
But he said what is more important now is what rating the trust is likely to trade on once Bolton steps down.
The only other Chinese equity investment trust (JPM Chinese) has traded in a three-year range of 6% premium to 13% discount, which could be a good benchmark for the discount, Gilligan said.
So far Fidelity China Special Situations has traded between a 13% premium and 8% discount.
Both of Bolton’s previous investment trusts at Fidelity saw their discounts widen after he left, but Gilligan said this was as much to do with wider market conditions as with his departure.
"We think the outlook for Chinese equities is a more important factor than the manager at the helm. Chinese medium and smaller-sized companies, particularly in the consumer space, where this fund has material exposure, are attractively valued and remain well place to benefit from the shift in the Chinese economy from an export-led model to a consumption-led model.
"We would continue to hold the shares and consider increasing exposure if the discount widens into double digit territory," he added.
Performance and tenure
Just yesterday the board of the trust announced that Bolton has extended his minimum tenure to manage the fund until at least April 2014.
Subsequent reports suggested Bolton has agreed to stay on beyond his original timeframe because he is disappointed with the performance of the fund and wants to try and rectify it before he stands down.
In 2011 the fund’s NAV fell 32.2% compared to a 17.8% decline in the MSCI China Index, Gilligan said.
"The underperformance was driven by a number of factors. Asian equity markets suffered heavy declines last year as concerns about the stability of the eurozone and the solvency of banks in the region came to the fore. Within Asia, Chinese equity markets were particularly hard hit as concerns over the possibility of a ‘hard landing’ escalated."
He said the fund’s heavy bias to mid and small caps (34% in the former and 40% in the latter as at 29 February 2012) means it has had a particularly difficult time.
An underweight in one of China’s more resilient sectors – the energy sector – has also hampered the fun’s performance and its gearing has exacerbated the NAV declines in a falling market.
But in 2012 both absolute and relative performance has improved, with the NAV up 13.2% year-to-date compared to a rise of 10.3% in the MSCI China Index.
