Opportunities like this don't come often.
This article forms part of our Duelling Fools feature on Fidelity China Special Situations. Read the opposing argument and vote in our poll.
There's a gap in my portfolio. And there may very well be an identical one in yours -- and for identical reasons.
I'm talking abut China, of course. With 1.3 billion people, it's now the world's third largest economy, and has been forecast to overtake Japan in 2010.
And as we all know, the country is taking significant steps towards becoming a western-style manufacturing and services‑based economy. Indeed, during my lifetime, China may well become the world's largest economy. Which was something unthinkable, even thirty years ago.
Too risky
But I still don't have any Chinese exposure in my portfolio. Even my Legal & General Pacific Index fund has steered clear of the place. South Korea, Taiwan, Australia, Hong Kong -- yes. Mainland China, no.
My reasoning may have been very similar to yours. Murky corporate governance, an unpredictable government, very different accounting practices, a very different judicial system -- you don't have to look very far to see ample reasons for not taking the plunge.
And so, quite simply, I haven't.
In-depth research
Fidelity's Anthony Bolton needs little introduction. Managed by Bolton from 1979 to 2007, Fidelity's Special Situations fund delivered a 20% annual return over a 25 year period, compared to 7.7% for the FTSE All‑Share Index.
Generally taking a fairly contrarian approach to investing, he isn't afraid to buy what's unpopular, and is known for in-depth company research -- which almost always involves meeting company managers to make sure that he feels comfortable with the decisions that they are going to be taking.
And having retired, he's now making a comeback, launching the similarly-named Fidelity China Special Situations fund, a closed‑ended investment trust.
And I'm buying into it.
Why? For five reasons.
1) China is precisely the sort of market where it makes perfect sense to have someone of Bolton's legendary skills batting on your behalf. Backed by a Fidelity research team, and based in Hong Kong, I expect Bolton to discard many more opportunities than he buys into. And those that he does buy into will have passed muster with one of investing's greats.
2) Bolton has form: he spots big opportunities, and backs them with his money. He's been visiting China and talking to Chinese companies since 2004 -- and having retired, he's now going back to fund management. Why? Because he thinks China is the investment opportunity of the decade, and is too good to miss. He and his wife are relocating to Hong Kong, and he's apparently putting over £2 million of his own money into the fund.
3) The fund is an investment trust, not an open-ended fund. This prevents it from getting too big -- the problem he faced with his original British fund -- and also gives the fund the ability to borrow, in order to leverage its bets even further. I normally don't like leverage and I don't like betting -- but I'm more than prepared to make an exception with Anthony Bolton rolling the dice.
4) The fund is also -- as these things go -- reasonably-priced. The basic annual management charge is 1.5%, which is rather lower than that charged by many of its competitors, which charge 1.75% or even more. There's a performance fee on top, but only if Bolton beats the index. Put another way, I'm getting active management -- and active management by one of investing's greats -- for just twice what a passive Asian tracker fund would charge me.
5) It's a bet on the Chinese currency. For years, American government officials -- and others -- have been complaining that China's currency is too cheap. China hasn't, so far, revalued -- but in my view, one day it is bound to. And when that day comes, my stake in Bolton's fund will be even more valuable.
In short, a stake in Fidelity China Special Situations is one of investing's no-brainers. I'm in. Are you?
Disclosure note: Malcolm holds Legal & General's Pacific Index fund, and will be subscribing to the Fidelity China Special Situations offer.
