Back in 2010, Fidelity launched its China Special Situations investment trust with Anthony Bolton at the helm. Anyone who was a MoneyWeek reader at the time will remember how cross the launch made us.
We thought it was an irresponsible time to be encouraging small investors to pile into China. We were horrified by the way the fund was marketed. Very few investment trusts ever paid commission to financial advisers even back in the days when they were allowed to. This one did.
We hated the fee structure. The management fee was a horribly high 1.5%, with up to another 1.5% to be paid out in performance fees (for relative rather than absolute performance, of course). The fee has now been cut to 1.2%, but even that means that Fidelity is getting in revenues of nearly £9m a year for running the fund. Finally, we were unhappy about Bolton’s short-term commitment. All the marketing material was about Bolton, but at the time, he only promised to run the fund for two years.
To me, looking at it back then, the launch seemed to sum up pretty much everything that was wrong with the fund-management industry: it came on the back of a bandwagon; it sold itself on irrelevant past performance (that Bolton did well in the West during one of the greatest bull markets of all time told us nothing about how he was going to do in China during a period of extraordinary economic turbulence); and it was priced with a level of arrogance almost unique to the financial sector (I say almost only because I have just had to buy some new ink cartridges for my printer).
Regular readers will know that not all the things we worry about turn out to be worth the bother. That hasn’t been the case with this one – it has been a serial and expensive underperformer. The only mildly positive thing I can think of to say about it is that Bolton didn’t scarper in 2012; he is a polite man and so he stayed a while instead. Now he has just announced he is going in 2014.
I’d like to say that along the way the fund-management industry has improved. To a degree it has. I don’t think many fund-management houses would have the gall to launch a big fund such as the China Special Situations Fund with fees of 1.5%-plus (although I wouldn’t be surprised to be proven wrong) and commission paid to advisers has been banned. But that’s it – fund management is still institutionally designed so that it practically never lives up to its promises, but gets paid as if it always does.
The good news is that I hope to be able to report more progress over the next few years. I keep being told about a new organisation called the 300 Club. It is chaired by the chief executive of Hermes Fund Managers and aims to “raise uncomfortable and fundamental questions about the very foundations of the investment industry”. We like the sound of that.