DEBT FINANCING. Fidelity guru Bolton gets rude awakening in China

HONG KONG (Reuters) - Fidelity's China fund has been forced to buy back a portion of its shares to bolster investor confidence in the faltering fund, in a stern test of star manager Anthony Bolton.
Bolton, whose contrarian bets made him a top UK fund manager for over two decades, moved to Hong Kong last year to manage the Fidelity China Special Situations fund.
The fund, launched to great fanfare in April 2010 invites prospective investors to "Experience the changing balance of world economic powers" in a banner splashed across the top of its website.
But with its underperformance -- the fund trails its benchmark index this year by about 5 percentage points -- investors have started to worry more about the changing balance of their holdings.
They recently pushed the share price below its net asset value, meaning some are willing to exit the fund below its market value.
In a sign that Bolton is preparing for the long haul, Fidelity China said late on Thursday it bought back shares of the London-listed fund, which has a market capitalisation of about $920 million.
The move comes after the closed-end fund lost about a fourth of its share price this year, underperforming the market and peers.
Its net asset value is now down about a fifth. By comparison, the benchmark MSCI China Index .MICNX0000PHK has lost about 15 percent.
That's a far cry from the annualised 20 percent return over 28 years that Bolton provided to investors in his former UK fund.
Closed-end funds offer a fixed number of shares to investors and can trade on exchanges like stocks. Fund companies like them because, unlike the more common open-end funds, investors cannot withdraw assets from them.
Some, like Bolton's fund, also use borrowed money to magnify their bets, which can boost returns in good times but can also lead to sharp losses when markets move adversely.
The buyback of 350,000 shares for 85.625 pence each at a 5.1 percent discount to its net asset value of 90.22 pence, signals a major reversal of fortune for the Fidelity fund, which saw strong demand from retail investors for a variant launched earlier this year.
BOLTON'S LEGACY
But this year the fund has done poorly, and it has been a rough time for one of the industry's best known names.
In a statement in June, Bolton termed his fund's performance "disappointing" and said a difficult period for Chinese equities had challenged his initial optimism. Fidelity did not respond to an email request on Friday to make Bolton available for an interview.
Bolton, born in 1950, shot to fame for managing the Fidelity Special Situations fund since 1979, turning every 1,000 pounds invested at its launch to 148,200 pounds over the 28 years that he ran the fund, according to Fidelity.
He had already stepped down from day-to-day portfolio management in 2007, but surprised the industry by his comeback through the China fund, which invests in companies listed in China or Hong Kong as well as Chinese companies listed on other stock exchanges.
The Cambridge-educated fund executive, whose hobby is composing classical music, invested 2.5 million pounds of his own money into the fund, a sign of his confidence in the world's fastest-growing major economy.
His top holdings include China Unicom (Hong Kong) Ltd (0762.HK) and Ping An Insurance (Group) Co of China Ltd (601318.SS) (2318.HK), the world's No.2 insurer by market value. Ping An shares are down 28 percent this year.
Bolton has also invested in Tencent Holdings Ltd (0700.HK), China's largest Internet company, GOME Electrical Appliances Holding Ltd (0493.HK) and Brilliance China Automotive Holdings Ltd (1114.HK), the Chinese joint venture partner of BMW AG
(BMWG.DE).
He has invested 56 percent of the fund assets in China and about 39 percent in Hong Kong, according to research firm Morningstar, taking a hit from the over 10 percent drop in the benchmark Shanghai composite index .SSEC and Hang Seng Index .HSI this year.
Given his strong long-term performance, some analysts are asking for Bolton to be given a longer rope.
"Investors should look for at least a three-year track record to take any investment decision," said Xav Feng, head of research for Lipper in Asia Pacific.
"It's too early to write off a legendry fund manager like Anthony Bolton."
(Editing by Brian Rhoads and Muralikumar Anantharaman)

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