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Fidelity China a mistake?

Investment | Investment Trusts Helpful? 20

Asked by RouteN29, submitted 14 April 2010.

Open Quote Have I made a mistake buying Fidelity China Special Situations Fund?

I have invested close to 13% of a modest inheritance in the Fidelity China Special Situations Fund through the Hargreaves Lansdown Vantage ISA.

Now that I've done a bit more research and seen that the fund didn't reach its target, I am worried that I made a mistake.

Should I hold onto the shares for a year or so and see what happens or sell them on the first day of trading and invest them in another fund? Or if they drop in price or get discounted, should I buy more? I will kick myself if the Mr Bolton's fund is a big success but alot of commentators seem to think the odds are against him.

If I were to choose another fund to replace this do you think I should go for an existing China fund or focus on South East Asia generally?

I have another question which relates. While sorting out my finances before the end of the tax year, I bought some other funds through Hargreaves Lansdown as follows:

VANTAGE ISA - Jupiter Absolute (24% of my inheritance)

VANTAGE SIPP - Aberdeen Emerging Markets (6.5% of my inheritance) & Invesco Perpetual Japan (6.5% of my inheritance) plus a monthly direct debit into each of these funds of £50.

I didn't take any financial advice on these decisions as I don't trust IFAs to be independent. My decisions were influenced by quite a few press articles about the potential in Japan and China but frankly after reading a lot of analysis about a lot of funds, I was punch drunk and just ended up picking these ones.

As a portfolio does it appear to be balanced and if not any suggestions on how to make it better balanced? I wish I'd heard of this website before I leapt in! Thanks very much.
End Quote

Answered by Justin on 15 April 2010

I wouldn’t lose too much sleep over your Fidelity China investment. It could turn out to be a roaring success and even if Anthony Bolton doesn’t replicate his previous form you’ll probably still make money if Chinese markets rise. The fact that Fidelity didn’t hit its fund raising target of £630 million suggests the investment trust might trade at a discount when it comes to market on 19 April, but if you’re planning to hold long term this may not be an issue.

My concern is that Fidelity has structured China Special Situations to suit its own interests more than those of investors. This doesn’t make it bad, just not as good as it could have been. Plus there’s the obvious question marks over how successful Bolton will be and for how long he’ll remain as manager.

Perhaps you could consider selling half of your holding if Fidelity China doesn’t open at a large discount and re-invest the proceeds in another fund with exposure to China or the region more generally. That way you won’t kick yourself too much if Bolton is a runaway success and if the trust bombs the impact on your portfolio will be reduced.

Experienced China managers include Martin Lau (First State Greater China Growth) and Philip Ehrmann (Jupiter China). And funds with decent management teams offering more general exposure to Asia include First State Asia Pacific Leaders, Fidelity South East Asia and Aberdeen Asia Pacific.

At least Hargreaves Lansdown waives initial commissions, so the costs to invest in new funds should be either nil or negligible (although there’ll be a dealing cost if you sell Fidelity China Special Situations shares).

As for your overall portfolio, my initial observation is that it’s heavily biased towards Asia and emerging markets based on the funds you’ve listed. While I don’t doubt long term prospects, volatility is likely to be high so I’d really suggest taking at least a 10 year view on this region – don’t be surprised if the investments either double or halve over a particular year.

Jupiter Absolute is probably a good choice but I wouldn’t risk nearly a quarter of your inheritance in one fund. Perhaps diversify using another absolute return style fund too – you might find this forum post helpful.

There’s no right or wrong, but personally I’d try and spread your money more widely so it’s less concentrated on one region or asset type. For example, you could consider an equity income fund which is likely to be more defensive than your Asia funds and offers the benefit of dividends. Or gold, which is often a good hedge against difficult markets and troubled times. And commodities, while higher risk, can be good for diversifying away from stockmarkets. Plus there are also less volatile investments (at least in theory) such as corporate bonds and commercial property which can be useful for reducing overall portfolio risk.

The combination of investments that suit you best will obviously depend on how much risk you’re comfortable taking and how long you plan to stay invested.

I don’t blame you for distrusting financial advisers, but I’d be equally wary of discount broker marketing too - there’s a temptation for them to promote whatever will sell by the bucket load rather than what might be most appropriate for you.

If you subsequently decide to take advice then the only discount broker I know of that offers this service is Bestinvest, which gives independent advice on portfolios above £50,000 in return for the trail commission paid by funds. Given there’s unlikely to be any financial benefit for them to recommend one fund over another the advice should be impartial.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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