brutal markets hurt boltons nav

Anthony Bolton called markets over the past few months the most “brutal” he could remember, as he sought to justify a 29% fall in the NAV of his investment trust in the first half of the year.

brutal markets hurt boltons nav


During a post-interim results conference call, Bolton said September in particular had contributed to what had been a very disappointing six months for the Fidelity China Special Situations Trust, and admitted markets had been "much worse" than expected.

Net Asset Value per share of the trust fell 29% from 104.20p at the end of March to 73.93p at the end of September, as net assets dropped from £791.89m to £608.82m in the same period.

Bolton also admitted he had made a wrong call on the extent Chinese stock markets would become decoupled from developed markets in the shorter term and as a result, events in Europe had had a greater effect on the fund than he had foreseen.

"We have been in a risk-off world. Investors have taken the view that we are going to have an exact replay of the financial crisis is 2008. But I think that is still very debateable."

Data coming out of the US showed it was still expanding and unlikely to fall back into recession any time soon, he added, and even in Europe "which has obvious problems", the idea of a deep, region-wide recession over the short term was questionable.

China tightening over

Looking back to his chief investment concern, Bolton said he had hopes the tightening cycle in China was coming to an end, which is usually perceived as positive by markets.

Equity valuations are also towards the lower end of their 10-year average, indicating there is plenty of room for growth.

"It [the loosening of monetary policy] will not happen quickly because of political changes. The new government will want some good news to bring in when they come into power at the beginning of 2013."

Increased availability of credit, which would potentially follow looser monetary policy, would work in favour of the China consumption story that Bolton is such a believer in.

But he said in the 18 months since the launch of the fund he had become aware the growing middle class would at some stage be looking for greater freedom.

"The challenge for the new government will be starting to meet the aspirations of this middle class."

Despite this challenge, Bolton is still overweight in consumer discretionary and consumer staples, as well as health care and IT.

He is less confident on property and commodities, apart from gold, which he said has not yet shown characteristics that would suggest it had peaked in price.

In the management of China Special Situations since launch Bolton has followed a similar approach to his previous funds, focusing on small to mid-cap companies. He said this had hurt his performance due to the increased risk inherent in such companies during a bear market.

Gearing at the end of September was 24.4%, having been in the "high twenties" at the start of the month. This also intensified the fund’s poor performance in the falling market.