Bolton looks to financials after faltering start on China fund

Anthony Bolton is backing Chinese financial companies, devoting nearly a third of his £523 million Fidelity China Special Situations fund to the country's banks and insurers.

Fidelity China Special Situations' first half-year report highlights Bolton’s bullish stance towards financial stocks.

Bolton will be hoping the bet will help turn round the fund's initial performance. Since launch on 19 April its net asset value (NAV) has fallen by 5.48% versus a 3.5% decline in the MSCI China index. It is early days though and many investors will have gone into the fund hoping Bolton will repeat the impressive long-term returns he generated on Fidelity Special Situations fund, now run by Sanjeev Shah.

The financials and banking industry occupies the largest sector position in Bolton's portfolio, followed closely behind by his 20.7% stake in discretionary consumer stocks.

Around a month ago, the highly regarded Fidelity manager told Citywire he expects China to lead the charge in a mid-year bull market, fuelled largely by growth in the region’s domestic economy and service sectors, a theme reflected in his concentrated porfolio.

‘Previously manufacturing and exports were the drivers but that era is over. It will now be about the domestic economy and service sectors. We are big in retailing, sports goods, electrical, shoes and jeweller,’ he said at the time.

Bolton has also taken out a large position in telecoms – 11.5% – in a further sign he expects service and consumer spends in China to rise.

His largest company holdings are China Mobile Limited and the Industrial and Commercial Bank of China, which each account for 6.3% of his the investment company’s holdings.

Bolton has increased the amount he can invest by expanding the fund by 16% with loans.

Shares in Fidelity China Special Situations continue to trade at a strong premium compared to the rest of its sector. Shortly after its launch the company traded at a premium of 10%, though now the figure has tightened to just over 7%. The other four trusts in the Asia Pacific sector trade at discounts ranging between 15.9% and 1.7%.

Top 10 holdings

Industry breakdown (as at 30 June):
Financials        32.4%
Consumer       20.7%
Telecom services      11.5%
IT         9.6%
Healthcare      7.6 %
Materials         7.1%
Industrials       4.6%  
Consumer staples      3.5%    
Other   3.0%

Company breakdown:
China Mobile Limited   6.3%                 
Industrial & Com Bank of China 6.3%
China Merchants Bank   5.6%
ITencent Holdings      4.2%                  
China Unicom (Hong Kong)       4.2%
HSBC Holdings Plc      4.1%
Ping An Insurance Co   3.2%
CNinsure Inc Spons    3.1%  
Hang Lung Properties   2.5%
United Laboratories    2.3%.

For more on investing in China read our report, 'The great funds of China'.