Think the financial crisis has made investment managers a little less greedy? Think again. They’re working even harder to concoct ways of parting you from your money.
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Cyprotex shares on the up after takeover bid
Cyprotex shares on the up after takeover bid
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Fund manager, Fidelity is desperate for your money. Just check out its latest “great idea”.
Take the only UK fund manager that many private investors have ever heard of: Anthony Bolton. Now add a hot investment idea: the “mighty Chinese economy”. That’s got to equal a handsome reward, right?
Well, I’m not going near it personally. Today I’ll show you why…
Just because it’s ‘hot’, it doesn’t mean it’s good
Fidelity has really cranked up its marketing machine for this one. It’s started trotting out all sorts of things that we already know. Here are a couple…
For instance, Fidelity tells us the ‘compelling’ fact that China’s economy is growing fast.
For instance, it tells us the size of China’s stock market is tiny in relation to the size of the economy. And that it accounts for just 2% of the value of all global shares.
And then Fidelity gets all cosy and personal. ‘Anthony believes the Chinese stock market will become the world’s second largest as a result of new issues and share price appreciation.’
So what?
Fast economic growth does not necessarily lead to good stock market returns. Just look at the first eight years of this century. The emergence of the Chinese tiger could reasonably have been expected to produce fabulous stock market returns in that time. Yet the Shanghai Stock Exchange actually fell by 10%.
Why?
Fidelity inadvertently provides one answer. As the appetite of investors rises, so does the supply of goodies. As the Chinese stock market becomes host to thousands of new companies, these absorb much of the cash that might otherwise lift the price of existing stocks.
And there is a more subtle reason than this. Investors are all too easily swayed by emotion. China is taking over the world! China is home to the world’s most voracious entrepreneurs! Who can resist the lure?
But where reckless emotion takes hold, rational financial discipline goes out of the window. Rather than demanding sound business models, high returns on investment, clear strategies and cash-based profits, star struck punters simply want to get aboard at any cost. Taking far too much on trust, they make it easy for unscrupulous promoters to sell shares in the dodgiest of ventures.
And Anthony Bolton is no old China hand. Now sixty years old he has made his name in the UK stock market. But, he tells us, ‘I have been a regular visitor to China since 2004 and I plan to relocate to Hong Kong shortly.’
Well I lived in Hong Kong for eight years but that certainly did not make me an expert on Chinese business.
In fact, I’ve learnt more about it from my Chinese brother-in-law, who has a factory in Szenzhen. He has told me stories that would make your hair curl. Stories of criminal mafia and pay-offs to local big-wigs.
China is fiercely competitive and virtually lawless. Accounting standards are flimsy. Corporate governance is virtually unknown. Foreign investors are seen as nothing more than a gullible source of cash. Frankly I would not go anywhere near it.
And there is one more turn-off. Apart from the nice fat fee that Fidelity will be getting for managing this £600m fund, it is also going to charge a ‘performance related’ fee – even in years when investors lose money!
When Bolton started his City career in the 1970s, no investment manager would have the gall to even suggest such a thing. But today, when private investors are there not to be served but to be ripped off at every opportunity, this type of thing has become the norm.
Four reasons why I’m not touching this fund
So there you have it. A guy with virtually no relevant experience, and not enough years left on the clock to harbour much ambition, punting your money in a highly suspect market. And a ‘heads I win, tails you lose’ fee structure.
I’d run a mile. In fact, I’d run a mile from the whole Fund Management industry.
If you want to make real money, invest directly into businesses that you know something about. That’s what has worked for me in my 30+ years of investing.
That’s why I spent a day last week ‘kicking the tyres’ of one of the UK’s most exciting penny shares. I went to meet the management for the second time. And I saw his company’s product in use. I learned a lot about why this is could be a great investment in the years ahead.
You can read more about it in the March issue of Red Hot Penny Shares – out this Saturday.
Best wishes,
Tom Bulford
For The Penny Sleuth
P.S. It’s not that I dispute the potential of China. In fact, I’m sure China will drive many profit opportunities in the years ahead. It’s simply that this latest Fidelity fund sounds like it’s jumping on the bandwagon and cashing in on two “hot properties”, China and investment legend, Anthony Bolton.
But I reckon I’ve found a far better China play. It will be in the new issue of Red Hot Penny Shares – out on Saturday. See if my three latest tips can tempt you into picking up a copy:
- A China-backed junior miner that’s poised above the last high-grade source of its commodity in the world… look for its share price to multiply in less than a month!
- How one shrewd deal put this niche drug firm on my profit ‘red alert’… how you can gain exposure at a rock-bottom price…
- A penny share company with ‘the ultimate answer to clean coal power’…
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