The big interview: Anthony Bolton
There aren't many people who would come out of virtual retirement aged 60 and relocate to the other side of the world to practise their trade. But that's exactly what Anthony Bolton, iconic fund manager and investment director at Fidelity Investment Management, did.
Two years after stepping down as manager of Fidelity Special Situations – a fund he managed for 27 years with annualised returns of 19.5%, compared with a benchmark of 13.5% - Bolton is back.
"I stopped fund managing at the end of 2007," he says. "The original plan was to retire, but before I did I thought it would be nice to finish my career doing some work with the team in China."
The rest, as they say, is history. Bolton was so convinced by the investment opportunities in China that he was compelled to return to active fund management and launched Fidelity China Special Situations in April.
At the time, some commentators suggested Fidelity was using Bolton's name to entice investors to put their cash into an area that might be unsuitable for their risk appetite. But his investment style has never been particularly low-risk; he prefers to focus on out-of-favour or 'value' stocks he believes hold the potential for dramatic growth.
In China, Bolton continues his habit of meticulous research into the stocks he picks - since arriving there in March he has met with over 250 companies. However, even star fund managers can experience culture shock.
"One of the main challenges in China is knowing who you can believe," Bolton says. "In the UK, 95% of those I met were trustworthy. Here, more people stretch the truth in some way."
When sorting the wheat from the chaff, Bolton relies on his instinct. A couple of months ago, for example, he met with pharmaceutical company Novartis, which has been down on performance since 2007.
He was impressed by the new management's strategy for turning the business around, despite the fact that the rest of his team weren't so convinced. Bolton says having confidence in his own ability to pick winners is crucial, since "instinct and experience will add something that others often miss".
As the portfolio manager, he has the final word, but he likes to think he's receptive to the input of others. "I'm pretty approachable. It's in the analysts' interests and mine to let them know what I'm looking for."
Many people wonder why he would want to risk his reputation by launching a China fund. Bolton responds: "You've got to do the things in life that you enjoy. I didn't want to be standing here in 10 years' time thinking I could have done it."
Of course, he feels the pressure to perform – and with a maximum performance fee of 1.5% he has every reason to; but he is a firm believer in performance fees, saying if investors want good managers, they have to pay for them.
Giving a further insight into what motivates him, Bolton explains it was the number of non-believers rather than supporters that convinced him to launch the fund. "They thought China was an accident waiting to happen. But if everyone had been bullish, it would have been a worrying sign."
Despite a mixed reception from the financial services industry on his latest project, there's no denying Bolton's popularity among investors.
But being flavour of the month isn't always a good thing: the board of China Special Situations is faced with the unusual challenge of bringing the trust's premium down, and has decided to issue over four million new shares in an attempt to do so.
Investors' appetite for both China and Bolton has pushed shares in the £600 million fund to 9.7% over the value of its holdings (net asset value, or NAV) as at 8 November.
Investment trusts tend to trade at a discount to their NAV, and even when they do achieve a premium, it's rarely so high. So it's good news for investors who subscribed to the initial share offering in April, as their shares are worth 9.7% more regardless of the underlying performance.
Discounting the premium, the trust is up 7.7% since launch (as at 30 September) compared with benchmark returns of 1.4%. But the premium is likely to discourage new investors from buying the trust – at least until it has returned to a lower level.
"Big discounts are a problem," Bolton says, "and it's not great to have the trust on a big premium either; the ideal is to have it on a small one."
So far the jury is out on the success of his latest venture. Bolton, however, seems used to the pressure, and his diverse interests, including his passion for composing classical music, probably help to keep things in perspective.
One of his pieces was performed recently at the 90th anniversary of Save the Children in St Paul's Cathedral. It seems there's no end to this man's talents.
Take a leaf out of Bolton's book
In his book, Investing Against the Tide, Bolton explains the success of his investment process. Here are his key principles:
- If you're investing for the long term don't be concerned about short-term volatility.
- Keep a 'watchlist' of stocks or funds you are interested in and review your position on them every three months.
- Don't be afraid to go for something or somewhere out of favour.
- Use any insider knowledge of a sector you might have gained from your day job.
- Trust your instinct, but avoid emotional attachment to your holdings.
Usually charged as a percentage of returns for performance above a specified benchmark, such as an index. The fee can range from 10% to 20% of total investment returns on a low starting benchmark such as Libor and investors could find themselves paying extra fees for merely average performance. Note that these funds do not compensate investors when the manager underperforms the benchmark.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
A standard by which something is measured, usually the performance of investment funds against a specified index, such as the FTSE All-Share. Active fund managers look to outperform their benchmark index. Cautious fund managers aim to hold roughly the same proportion of each constituent as the benchmark, while a manager who deviates away from investing in the benchmark index’s constituents has a better chance of outperforming (or underperforming) the index.
Net asset value
A company’s net asset value (NAV) is the total value of its assets minus the total value of its liabilities. NAV is most closely associated with investment trusts and is useful for valuing shares in investment trust companies where the value of the company comes from the assets it holds rather than the profit stream generated by the business. Frequently, the NAV is divided by the number of shares in issue to give the net asset value per share.