“I think a multi-year bull market has started, of which we are in the first stage. That’s a global thing,” he says.
Bolton reckons that because the US and other Western economies are on their knees, a return to worldwide inflation is far away and interest rates will stay low for years. He surmises this is good news for all stock markets because investors will buy shares instead of relying on measly interest payments on cash savings.
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The quiet, contrary king of stock pickers
A fund guru who often goes against the grain
Naomi Rovnick
25 October 2009
Anthony Bolton is probably Britain’s most successful fund manager. A huge band of British amateur investors hangs on his every word and moves in and out of the stock market solely on his recommendations.
The investment president of fund house Fidelity retired from running funds 18 months ago, and now mentors its fund managers and continues broadcasting his views on world markets. But while he does not manage money directly any more, Bolton still will not discuss individual companies. In person, he speaks slowly and carefully.
He cannily dodges questions designed to elicit off-the-cuff remarks about businesses or their managers that could make some unsuspecting firm’s share price rocket, or hit the floor.
Between 1979 and the end of 2007, Bolton managed Fidelity’s Special Situations fund, which continually struck gold from making contrarian investments in unloved and under-the-radar companies.
Anyone who got in at the start of the Special Situations fund would have, by 2007, turned a £1,000 (HK$12,800) lump sum investment into £147,000. Bolton’s meticulous stock picking yielded average investment returns of 20 per cent a year.
So anyone who interviews Bolton is desperate to get some share tips for the readers, which he resolutely refuses to provide.
Still, his generalist views can offer investors excellent guidance, particularly if they are happy to stick to making macroeconomic calls by purchasing managed funds or index-tracking funds. In mid-2007, Bolton told people to get out of stock markets, sounding the alarm about high levels of bank lending and a bubble forming in the private equity industry.
Anyone who kept their money in stocks back then will have first-hand experience of the horrors that ensued until the equity market nadir of last October. Bolton, like Warren Buffett, buys into shares when the headlines on CNN turn hysterically pessimistic, and sells out when everyone is feeling happy and stockbrokers are prattling on about “new paradigms” to persuade their clients to pay very high prices for shares.
Luckily for Hong Kong investors, Bolton is bullish again, particularly on China. He has been telling Fidelity’s managers to buy China-focused funds since September last year, the month when Lehman Brothers collapsed and many market commentators predicted worldwide economic Armageddon.
“I think a multi-year bull market has started, of which we are in the first stage. That’s a global thing,” he says.
Bolton reckons that because the US and other Western economies are on their knees, a return to worldwide inflation is far away and interest rates will stay low for years. He surmises this is good news for all stock markets because investors will buy shares instead of relying on measly interest payments on cash savings.
He adds that stock market buyers are then likely to pay high prices for shares of companies that offer high growth, of which there are many in China. In fact, he is positive on all emerging markets.
“The average UK investor has the majority of their assets in the developed world and the minority in emerging markets. Perhaps, for the next few years, that’s the wrong way around.”
The veteran fund manager’s voice is often a lonely one. But the question: “How does it feel to be always saying the opposite of everyone else?” is met by a long, puzzled silence from Bolton. Then he clarifies that, when it comes to investing, he does not really have feelings. “It helps if you are unemotional,” he says after the pause. “And someone who is quite detached. I’ve had my strongest views around turning points in the markets. Most people are the other way around and take comfort from the crowd.”
And that, he adds, is where the greatest investing opportunities lie.
“People say the markets in the West are super-efficient, but we had the tech bubble and we’ve just had the commodities bubble. People are very herd-like and jump on a trend, which pushes it way beyond what we should do according to the fundamentals.”
However, he does warn local investors off one of their favourite activities, day trading.
“Some people can trade. I am sure most people can’t,” he says.
He then confides that the management of a British spread-betting firm, which sells a margin trading service to retail clients “once told me that their average investor burns themselves out in under a year. And to me, that said it all. People who trade short term can and often do lose all their money.”
In his recently published book, Investing Against the Tide, he advises investors to view buying a share as buying a stake in a company, as if you were investing in a friend’s business. Investors should also stick to buying shares in companies they understand, he writes, and they should be able to summarise in a few sentences why they own the investments. Later in the book, he admits to being completely befuddled when someone attempted to explain to him one of the complex debt instruments that were popular with hedge funds before the credit crunch.
Bolton is also obsessive about only putting money into companies whose managers he rates. In the 18 years he ran the Special Situations fund, he attended more than 5,000 meetings with company bosses. In the early 1980s, when Fidelity started this practice, it was virtually unknown in the City, but the investment style became the norm.
In 2003, Bolton made headlines for objecting to British television broadcaster ITV’s choice of chairman. (The anointed ITV boss, Michael Grade, did not get the job, and the episode earned Bolton the nickname “the quiet assassin”, a moniker the fund manager, who comes across much more like an affable headmaster than a lynch man, is well known to quietly detest.)
Bolton also much prefers business leaders to own large shareholdings in the companies they run. This, he admits, presented him with a problem when, from 2004, he decided to devote 3 per cent of the Special Situations fund to Chinese shares. Many mainland state-owned enterprises were off-limits because managers of such firms are often bureaucrats whose daily decisions are dictated by Beijing. So Bolton preferred Chinese privately owned firms for his fund.
This made selecting investments in China quite difficult, he admits. It is not unusual for mainland entrepreneurs who reach the top of the annual rich lists to end up in prison following corruption scandals.
Mentioning one mainland company, which was embroiled in a fraud case only recently, Bolton says: “We met a lovely lady there, but it was only on the third meeting she revealed that she was married to the chief executive.
“I said, isn’t that the sort of thing you should tell an investor straight away?” Apparently the lady did not agree this level of disclosure was necessary, so Bolton did not invest.
The founder of that company, who Bolton said should remain nameless, is now languishing in a mainland jail. Bolton admits most retail investors do not get the chance to meet company bosses and, naturally, recommends they put their cash in a managed fund instead. But his overriding message is that anyone who either splits their cash among a diverse range of China-focused shares, or does so through a fund, is probably sitting pretty for the next few years.
He points out that although the Hang Seng and A-share indexes are up about 66 per cent and 30 per cent respectively since March, they are still trading far below their high point in October 2007. He recommends avoiding Chinese exporters because of lacklustre consumer spending in the West. Instead, he likes consumer-focused mainland companies in undeveloped sectors of the economy.
“There are areas [in China] that are very undeveloped, like credit cards and motor cars.
“Look at areas where China is very under-penetrated compared to other countries. So it is on certain beverages - it probably isn’t on tobacco. You have to look at the dynamics of the industry.”
Bolton is positive on China even though many economists are terrified about how much cash the government and its banks are pumping into the economy to keep it ticking over.
According to forecasts from BNP Paribas, new bank loans on the mainland will swell to a record 11 trillion yuan (HK$12.47 trillion) by the end of this year.
“I have never seen anything quite like it,” Bolton says of China’s massive credit expansion. But, he counters, this is not too much of a threat to the mainland economy. He reckons Beijing’s coffers are deep enough for the government to take soured loans off state banks’ books.
“You [will] get bad loans, but that’s a few years down the road. It takes time for that to show itself. Last time the Chinese carved bad loans off to different [asset management] companies,” he muses. “Maybe they’ll do something similar again.”
The risk, of course, is that the Chinese government will not do this. But Bolton likes a degree of risk, coupled with the potential for bad news, because this is where he feels superior investment returns come from.
“I feel happier when I’m saying something different to the crowd, to be honest,” he says.
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