Bolton (pictured) had extended his tenure on the trust in an attempt to revitalise performance after a rocky start to its life, and last year informed the board he would stay until April 2014.
Although the performance in the year-to-date has improved, the former FE Alpha Manager announced he will leave fund management at that time and hand over to Dale Nicholls, manager of the Fidelity Funds Pacific and Fidelity Funds Asian Smaller Companies funds. "When I took on management, I always indicated it was going to be for a fixed term; originally I said it was for two years and I subsequently extended that for two individual periods of a year each," Bolton said.
"It’s been a more challenging period than I expected and of course, in more difficult markets, things like the gearing and the exposure to medium and smaller companies have acted against the investors rather than for them."
"The good news is that since September, those factors have been starting to work in favour of investors. Given the outlook that I see for China and for equities generally across the world, I would hope that by the time the fund is handed over to Dale, we would see more progress."
Data from FE Analytics shows that the small and mid cap trust has lost its investors 13.85 per cent since launch in April 2010, in which period the MSCI China index has fallen 6.4 per cent.
Performance of trust vs benchmark since Apr 2010
Source: FE Analytics
However, in the year-to-date, the fund is up 1.78 per cent as the MSCI China index has lost 7.24 per cent.
Performance of trust vs benchmark in 2013
Source: FE Analytics
Bolton had an outstanding record in UK equities as manager of the Fidelity Special Situations fund.
Data from FE Analytics shows that if you had invested £1,000 in Fidelity Special Situations on 17 December 1979 when it launched with Bolton at the helm, you would have had £142,240 on 1 January 2008 when he left.
The manager launched the Fidelity China Special Situations trust in April 2010, saying that China was ripe with opportunity.
Mark Dampier, head of research at Hargreaves Lansdown, says he was the victim of poor timing, launching the fund into a period of poor performance in the Chinese market that was exacerbated by the volatile nature of a small and mid cap fund.
Dampier suggests that Bolton’s retirement is due to his age and desire to do other things rather than his performance, and he notes that Bolton has a positive view on the near future for the market he invests in.
"He’s got every faith in the shares that he holds, but he has a family and he is a music composer as well and going into China is really hard work – his style is based on seeing companies all the time."
Dampier says that he sees no reason to sell the trust on the news and that Fidelity has done well to organise the handover in advance.
In fact, Dampier says that the trust could be an interesting buy on a discount of 9.3 per cent, for those investors who want to be in China.
Bolton says that the Chinese market is undergoing structural changes, which means investors need to change their strategy and that his fund should do better in the coming years.
"The interesting thing and what I have felt for the last three years is the drivers of growth are changing and growth is coming on, but is still going to be at around 7 per cent; that’s going to look really good against most of the rest of the world."
"The new areas that I think are going to be the drivers are the consumption and services sectors, and those are the areas that I have focused the fund on and are the areas that have the best prospects over the next year or two in China."
Dale Nicholls, who will be Bolton’s replacement, says he shares this view.
"The big areas would be consumers and technology," he said. "Those are the areas that I am finding the most ideas in."
"There are a lot of tailwinds in the sector: we know the government is trying to engineer this change to a more consumption-driven economy, you’ve got strong wage growth and savings rates are still high. There’s still a lot of room for savings rates to come down."
Nicholls has run the $1.17bn, Luxembourg-domiciled FF Pacific fund since September 2003.
Over the past decade he has returned 199.17 per cent, while the MSCI Pacific index has made 160.45 per cent, according to our data.
The fund is the second-best performer out of the 24 offshore Asia Pacific inc Japan funds out there over three years, with returns of 28.06 per cent against 19.42 per cent for the index.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
The fund has strong similarities with Bolton’s trust, which Dampier says should ease the handover period.
As much as 30 per cent of the fund is invested in China, and it holds 33 of the companies in Bolton’s trust, amounting to 47.2 per cent of Fidelity China Special Situations.
Bolton explains that this should also help ease the handover.
"We already work reasonably closely together because we’re already going to a lot of the same company meetings, because there’s a big overlap between the companies that Dale holds in his fund and the companies that I hold in the investment trust," he said.
"I see it being particularly intensive in the first quarter of next year, which will be the time when I will want to consult Dale before doing anything on the fund."
Nicholls says that stylistically, he shares a lot with Bolton.
"I’ve always had a small cap bias, the basic premise being as companies get smaller, there’s more mis-pricing, less information and more opportunity to capture alpha in the fund, so that’s something that’s definitely contributed to performance of the fund."
"Obviously, over time China has been a major focus, so that style definitely applies to the China portion of my fund as well."
"My approach really won’t change. I have a certain investment style. I tend to focus on small caps and I think actually that style is quite well-suited to the market in China."
"The amount of coverage that you have is noticeably lower than a lot of the other markets and I think it’s particularly well-suited both to our process and our resources in the region, and Fidelity's process is very focused on individual companies and meeting with management."
"It’s an interesting time for China in general right now. There’s a lot of negativity, we know growth is slowing and there are certain financial problems, but if you look at valuations, the market itself is probably the cheapest it has ever been and definitely one of the cheapest in the region, so I think now is a time of a lot of opportunity in the market."
Tim Cockerill, head of collectives research at Rowan Dartington, warns that even if the managers have similar styles, they are not identical, and investors will need to watch how the trust changes.
"Fidelity’s managers have the freedom to manage their funds as they see best. This is arguably a good thing, but this does mean that a fund can change significantly (on handover) because there is not a formal process behind it, it’s all about style."
"Anthony Bolton and Dale Nicholls do appear to have similar styles, and they will work on the fund together for a short while, but ultimately the fund will be Nicholls’ and in some critical ways, it will become a new fund."
"Nicholls typically seeks companies that can grow over the medium- to long-term, are cash-generative, reinvest cash advantageously, have proven quality management and a competitive advantage.
