Fidelity's legendary fund manager Anthony Bolton has admitted his China Special Situations trust is 'not where I had hoped to be' after the NAV fell 18.5% for the year ended 31 March 2012.
Bolton, one of the most widely-respected fund managers of his generation, has faced a difficult market since returning to run the Fidelity China Special Situations investment trust.
He said gearing had magnified the impact of market movements on the trust, which has seen the share price fall by 26.3%. Its NAV was also 6% below the benchmark MSCI China index.
Bolton said: "As outlined in the interim financial report, the fund has suffered from its ability to employ bank borrowings, which has magnified the impact of market movements, and from a relatively high exposure to more volatile medium and smaller companies in an environment where for much of the last 18 months their performance has been disappointing."
Looking at the Chinese economy, Bolton said he still does not expect a hard landing for China, or growth to fall to 5% or below. However, he said he is not as optimistic as the consensus GDP growth estimates of 8-8.5% a year.
"When I look at economic growth from a bottom-up perspective, I get to a somewhat lower figure (although it's possible that we may never see lower numbers published). Yes, consumption will remain strong, but fixed asset investment, particularly residential property, and exports are likely to see significant reductions in their growth rates," he said.
Bolton, who recently extended his tenure on the trust to April 2014 at the earliest, added valuations on Chinese stocks were now near ten-year lows, and offer 'attractive returns' over the next few years.
"I still believe world equity markets offer attractive returns over the next few years, even more so since the last ten years or so have been so disappointing," he said.
"Specifically on Chinese stocks, valuations are still near their ten-year lows
and sentiment has again become very negative. Sentiment regarding the "A" share market remains especially depressed despite a new policy in China designed to help it recover - a significant policy change. I continue to believe that those who stick the course in China will be amply rewarded."
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