Bolton keeps faith in Chinese smaller companies despite setbacks

Exposure to smaller companies will pay off in the longer term despite their poor relative performance, said Anthony Bolton, manager of the Fidelity China Special Situations investment trust.

'Despite their poor relative performance I still believe that the exposure to smaller private companies rather than the state-owned large enterprises will prove to be more rewarding in the longer term,' the veteran manager said.

Bolton said his investment strategy remained unchanged, yet he has built up exposure in the internet space. He recently restored his position in Tencent, added a 2.1% position in Baidu, and a smaller position in unlisted company Alibaba Group.

Shares in the investment trust fell 9.5% over the six months to 30 September, and the net asset value (NAV) per share was down 6.2%, according to its half-year results published yestereday.

The investment trust underperformed the MSCI China Index, which was down 2.1% over the period.

The fund has struggled to gain traction since its launch to great fanfare two years ago after Bolton, who made his name running the Fidelity Special Situations fund for many years, came back from retirement.

The shares are currently trading at around 77p, down from their 100p launch price. The NAV per share stood at 78.73p as of 30 September, according to the company.

The fund’s bank loans increased from 23.8% as of 31 March to 26.1% as of 30 September.

The fund has fully drawn down on its £95 million loan from February this year, but continues to use derivatives for further gearing or borrowing, totalling a further £41.8 million.

The fund's largest holdings are Ping An Insurance, Tencent Holdings Limited, a software development company, and China Unicom Limited.

Bolton (pictured) said this quarter has continued to disappoint, with the main cause being the combination of China’s slowdown, the fund’s gearing and its high exposure to medium and smaller sized companies.

‘Encouragingly the markets and the company have performed better in October,’ he said.