Is it time to exit Bolton’s China trust?

It is not surprising to learn that Britain’s active fund managers have struggled to beat their benchmarks in 2011.

Paul Farrow
Paul Farrow

Extreme uncertainty and volatility is putting them on course for the worst year in a decade.

One minute the euro is about to collapse and the next, a second banking crisis is about to implode. You get the feeling no one knows which way markets are going to go.

Recent figures suggest about 30% of the managers of more than 1,800 active funds investing across a range of asset classes, including equities, bonds, commodities and property, have added value since the start of 2011.

Many of the big names have failed to cut the mustard but the most notable manager to struggle is Anthony Bolton, whose China fund is down by about 30%.

Who would have thought the UK’s most lauded fund manager would feel it necessary to apologise to his loyal band of investors? In a statement he said he is “sorry to report” that difficult markets, his choice of volatile stocks and the fund’s high leverage had “produced some very poor performance figures”.

Bolton has no reason to apologise as investors followed him for selfish reasons – to make a mint.

Bolton’s track record in the UK is part of fund management folklore. For more than 28 years his Fidelity Special Situations fund achieved annualised returns of 19.5%, compared to 13.5% for the FTSE All-Share. If you had invested with Bolton at the outset and stuck £1,000 the fund, you would have been sitting on a pot worth £148,200 by the time he stepped down.

Performance was the key reason why tens of thousands investors decided to follow Bolton east. People never made the most of his UK success, the majority joining in long after the bumper gains had been made. But this time they had an opportunity to follow the master at the outset – and who could blame them? (article continues below)

What was interesting at the time of the China trust’s launch was how financial advisers that had hitherto ignored investment trusts for being too complex, decided it was different this time around.

Investment trusts are often overlooked by advisers, despite their often superior performance and their lower fees. No amount of friendly PR can prevent unit trusts from hogging the headlines and raking in the lion’s share of our money each year.

One of the other reasons touted as to why investment trusts lag unit trusts in terms of sales is commission. Unit trusts pay it, 99% of investment trusts do not. It is no surprise Fidelity paid commission on this occasion.

Some commentators have compared Bolton to a former heavyweight champion making a comeback and, to be fair, many advisers were sceptical of his timing and questioned whether he would have the ability to find success in China.

I have no doubt these advisers who shunned the launch are feeling, quite rightly, a little smug at this juncture.

But, for many, their clients are sitting on a big loss and Bolton has a lot of ground to make up just to break even. Bolton has hinted he is not in it for the long term.

Clients will want to know whether it is time to throw in the towel or whether they should stay in the ring for a few more rounds in the hope Bolton can out box the China stockmarket over the longer term. Those advisers who happily took the commission, for what, after all, was an easy sell, will now have to earn it.

Paul Farrow is the personal finance editor at the Telegraph Media Group.