Bolton made his name in the UK with Fidelity Special Situations, before launching an open-ended investment trust focused on China in 2010.
His reputation led many to expect great things from the trust, but data from FE Analytics shows it has lost 25.2 per cent since launch, compared with a 7.8 per cent fall from its benchmark.
Performance of trust vs index since launch
Source: FE Analytics
With no sign of a recovery in the vehicle’s performance, investors are stuck with the dilemma: stick with the star name in the hope he can turn it around or sell out in case it gets any worse.
Hargreaves Lansdown’s Danny Cox (pictured right) says that investors who are starting to have doubts about a fund in their portfolio need to get as much information as they can about its approach and strategy. He commented: "The first thing is to try to understand why the fund hasn’t done well. It could be the market it’s investing in isn’t doing well but the fund is actually doing OK compared to its peers."
"Or it may be underperforming relative to its peers. It may be that it has made two or three decisions that went badly."
"All sorts of resources are available for investors to see what analysts are saying about certain investments and why they are performing as they are."
"BlackRock Gold & General is an example of a fund that hasn’t been doing so well in recent times, thanks firstly to the gold price and secondly to the fact that in difficult economic times those companies that pay dividends are much more in favour and there’s poorer sentiment towards the sort of company it invests in."
Performance of funds over 5-yrs
Source: FE Analytics
"However, if you are still happy with the risk and you still believe in the long-term story then it’s doing better compared to its peers, so you may want to stick with it."
"It’s important that when you are managing your own investments to get all the information you can and to avoid bouncing from one fund to another. The typical nightmare is an investor who sells out of something when at the bottom and buys into something else at the top."
AWD Chase de Vere’s Patrick Connolly (pictured left) believes it is difficult for private investors to deal with such situations because they have fewer resources at their disposal than professional advisers.
He said: "People tend to fall into two camps: those who move too quickly and get out without understanding why a fund has underperformed and those who stay in too long.""The reality is that many private individuals do not have the knowledge and expertise to judge whether one fund is better than another, which is why people who are making their own decisions, perhaps with the help of what they read in the media, should always be taking some form of advice."
He stresses the importance of diversifying portfolios to reduce the impact of poorly performing funds.
"As a starting point, the client needs to ask what circumstances he or she has, what do they want to achieve and over what timeframe."
"Then they need to build an asset allocation approach, deciding how much they want to have in equities, how much in bonds or property and so on."
"After that you need to consider your geographical diversification and only then should you be looking at individual funds."
"Often people aren’t looking for one fund that shoots the lights out; they are looking at the portfolio as a whole, so if one fund isn’t doing so well there are others that are."
Cox agrees that portfolio diversification is key.
"Fundamentally balancing your portfolio is about getting the right asset allocation and then looking for the managers you believe will make the right decisions over the long term," he said.
"In our Wealth 150 we are looking to select managers we think are more likely to add value over the long-term, even though they might go through good and bad periods."
For those who don’t have the resources, Connolly says that picking the right fund at the outset becomes more important.
He explained: "People who have only one fund or very few will probably want to invest in something that has a good track record of performing consistently."
"It’s important not to put too much weight on what is at the top of the rankings over a short period of time. Often the funds have taken high levels of risk to achieve that and so they could do very poorly in the future."
"You need to look for funds that are consistent over the long-term, and – this is something which might be difficult for private investors to see – with an approach that is consistent and repeatable."