Bolton sees “little logic” in China fund’s premium

Anthony Bolton, the manager of the Fidelity China Special Situations investment trust, says he sees “little logic” to the fund’s currently high premium.

Speaking in an investment manager’s report in interim results for the fund this morning, he says he hopes the planned share issue in the new year will “bring the premium closer to the net asset value (NAV) of the company.

The results show that from its launch on April 19, 2010, to September 30, the fund’s NAV per share rose by 7.7%, compared with a return of just 1.4% from the MSCI China index.

Shares of the investment trust delivered total returns of 13.2% over the period, helping to create a premium of 6.2% to NAV as at September 30.

Bolton says at the time of writing the fund had delivered a NAV rise of about 15% and was trading at a premium of closer to 13%. (article continues below)

He says: “Although these are still early days, the initial performance of the fund has been encouraging. I see little logic for the recent high level of premium but I hope that the proposed share issuance will bring the premium closer to the net asset value of the company.”

Elsewhere, Bolton says: “It is great to have my feet under the desk again. China is an enigma. Although impressive in many ways, it can still give cause for concern. I have some concern about the current rate of credit expansion, which is still too high, particularly when one takes all the off-balance sheet and unofficial lending channels into account. The recent interest rate hike could be the first of several. Another potential issue could be social cohesion – whether or not China can take the ongoing transformation of its economy in its stride.”

But he defends his decision to launch the fund, saying “there will be bumps along the way” but one day investors will own a China fund “as a matter of course”.

He says: “My belief that we are in a two-speed world has become conventional wisdom. Chinese growth could return to 7-8% from its current double digit level but, relative to growth of around 2% in much of the world, this will look pretty interesting.”