What to buy as Bolton passes on the baton

published 4 July 2006

That the fund had to be split is generally accepted. As the largest investment fund in the country three times the size of its nearest rival Bolton himself believes that it is now too big to manage effectively. What is causing more of a ruckus is the appointment of his successor, who only began managing funds in 2002. It is for Fidelity to prove to investors that they should keep their money invested with it, says David Prosser in The Independent, but they have not done so as "there are alternative funds that do have the decent track record that Korhonen lacks."

William Kay in The Sunday Times agrees because of his belief in "the view that it is better to follow managers than funds". He says he would prefer putting his money with John Chatfield Roberts at Jupiter Merlin Worldwide Portfolio, or Kathryn Langridge at Invesco Perpetual International Equity Fund.

But Korhonen is Bolton's pick: he believes him to be the best special situations manager at Fidelity. "We could not have asked for a higher stamp of approval," says Darius McDermott of Chelsea Financial Services in The Daily Telegraph. An investment of £1,000 at launch in December 1979 may well be worth about £130,000 today, but as Jeff Prestridge points out in The Mail on Sunday, "Bolton would not have been a phenomenal success without the 270 equity analysts supporting him and the rest of Fidelity's fund managers"; it is those people who "represent Fidelity's heartbeat".

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Korhonen, who joined Fidelity as an equity analyst ten years ago, certainly isn't one to follow the crowd, taking an interest in oil tankers in the late 1990s, when the rest of the world was chasing dotcoms. Since 2004, he has managed Fidelity's global equity funds for Japanese and Australian investors, and both are up. The global fund for Japanese investors returned 41% between September 2004 and May 2006 against 37% for the MSCI World Index, says BestInvest, while his Global Focus Fund for Australian investors is up 13% since its launch in October 2005, compared with 11% for the index. However, other global funds have performed more impressively. For example, the Artemis Global Growth fund is up 78% since September 2004.

Fidelity are upping their initial investment charge from 3.5% to 5.25% to discourage new investors, points out Jeff Prestridge in The Mail on Sunday. So if you're looking to put your money somewhere else, he suggests Artemis UK Special Situations, Axa Framlington UK Select Opportunities, Merrill Lynch Special Situations and New Star UK Special Situations as alternatives. Paul Ilott of Bates Investment Services tells The Times that M&G Recovery, managed by Tom Dobell, most closely resembles the Fidelity fund, which chooses unfashionable stocks. Brian Dennehy, of independent financial adviser Dennehy Weller and Co, also in The Times, tips Jupiter Undervalued Assets. Bottom line: you can probably get similar performance elsewhere without the heavy charges.

What matters more - the fund or the manager?

The stellar performance of Anthony Bolton's Fidelity Special Situations Fund since 1979 raises two questions for fund investors. The first is whether a fund's past performance gives any guide as to where it is likely to go in the future. According to a study from the Investment Management Association, which looked at funds from 1981 to 2001, 37.6% of all top-quartile performers in the All Companies sector remained in the top quarter the following year. Over seven years, about 60% of top-quartile funds were in the top or second quarters over the following 84 months. This suggests a strong relationship between past and future performance among some funds. Take the famous example of Bill Miller's Legg Mason Value Trust it outperformed the S&P 500 over each of the past 15 years. As Michael Mauboussing points out in his book More Than You Know, the probability of this was one in 2.3 million.

The second question is whether the success of a fund is down to a fund, or a fund manager. On this point, Citywire.co.uk indicates that there is a greater degree of consistency among fund managers than funds. The "figures suggest Special Situations fund investors should be wary of the risks of switching managers", says Tony Tassell in the FT.