The launch of Fidelity China Special Situations (LSE: FCSS) investment trust on 19 April this year attracted a great deal of attention and debate, marking as it did the return of veteran investor Anthony Bolton to active management.
Bolton, who gave up his long stewardship of the UK-focused Special Situations fund in 2007 for a hands-off role as President of Investments at Fidelity, threw himself back into stockpicking, convinced that China represented “one of the best investment opportunities of the next decade.”
Getting invested
Bolton lost no time in moving to Asia and embarking on an extensive travel itinerary that would include over 150 company meetings, visits to factories and retail outlets, and interviews with countless Government officials and independent consultants.
By the end of April, China Special Situations was 76% invested in equities; and by the end of May fully invested, “with the weak markets providing the opportunity to purchase shares in some less liquid names at attractive prices.”
Bolton says his stock picks have fallen into two broad categories:
larger companies on fair valuations (at a premium, though not a significant one, to equivalent Western companies; and

medium/smaller companies at very attractive valuations (often at or below the valuations of equivalent Western companies).
We might characterise the former as GARP-like (growth-at-a-reasonable-price) selections; and the latter as value picks.
Macro view
Bolton sees the recent state of the markets as the normal consolidation that follows the first leg of any bull market and expects the bull run to resume later this year.
As a measure of his confidence, it can be noted that the trust had increased its gearing to 116% by the end of June.
In the trust’s latest factsheet (pdf document), Bolton says:
“I have positioned the trust to benefit from the structural changes that I believe are taking place in China, particularly the shift from an export-led economy to one driven by domestic consumption.”
Top 10 holdings
The latest factsheet also reveals Bolton’s biggest bets. The top 10 companies represent 42% of the portfolio.
Top of the list at 6.3% is giant mobile services provider China Mobile, which has 522 million customers and a 71% share of the Mainland China market. Tencent Holdings and China Unicom, at numbers four and five in the portfolio (both at 4.2%) give further exposure to the telecoms sector.
Banks fill the second, third and sixth spots: Industrial and Commercial Bank of China (6.3%), China Merchants Bank (5.6%) and HSBC (4.1%). Financials are also represented by the insurance sector — Ping An Insurance (3.2%) and CNinsure (3.1) — and a diversified real estate company, Hand Lung Properties (2.5%).
Completing the top 10 is United Laboratories International (2.3%), the largest of several pharmaceuticals stocks held by the trust.
Other holdings
There are no details of individual companies outside the top 10, but, in keeping with Bolton’s macro domestic-consumption theme, he tells us that key sectors (beyond those in the top 10) include:
“retailers such as department stores and sports goods retailers, electronic goods, shoes and jewellery producers … wines and spirits, restaurants, hotels [and]automobiles …”
It’s way too soon, of course, to make any judgement on the performance of China Special Situations. The trust is currently trading at around the same level as its 100p launch price, and at a 6% premium to net asset value (NAV).
By contrast, its longer established rival JP Morgan Chinese IT (LSE: JMC), currently trading at 140p, is at a 5% discount to NAV.
On the face of it, then, the JP Morgan trust offers investors better value at this point in time. But Bolton’s legions of fans will no doubt be expecting him to come out on top in the long term.