Anthony Bolton: ‘I was wrong about China’

Mr Bolton, who is best known for his significant market outperformance while running the flagship Special Situations fund for 28 years, will now become a member of the Fidelity board but will no longer run money.

The manager famously came out of retirement the first time around to launch the China Special Situations trust in 2010, but was unable to repeat the stellar performance of his UK fund.

“The most disappointing thing for me – and I am happy to admit it – is that I was wrong about the market in China,” he said speaking on his last official day at the office.

“I thought it would go up for four years but it has gone down over four years.”

The manager acknowledged the first six months for the trust were “good”, but the next two years were “really difficult”.

“I experienced some of the worst market conditions, particularly in August 2011,” Mr Bolton recalled. “I had a geared fund when everything was going down. I made a big play to ‘new China’ and in the past 18 months that has really come into its own. But I would have liked to have seen a better share price at the end of my tenure.”

The trust has delivered a share price total return of 6.7 per cent since launch in April 2010, better than the 4.3 per cent loss by its benchmark MSCI China index, but behind peers, according to data from FE Analytics. Management has now passed to Mr Bolton’s colleague Dale Nicholls.

One of the trust’s sector overweights is technology – a sector in which Mr Bolton made key calls during his tenure on Special Situations.

The manager’s decision to back Nokia in 1993 and to buy Securicor shares in the belief its stake in Cellnet – which it co-owned with BT – would push its value up proved to be key moves.

While the tech stocks in his China trust may not all have paid off, his predictions about technology have come true.

Mr Bolton said he was more pessimistic about GDP growth prospects in China, predicting 6 per cent growth as a likely figure – lower than the consensus 7.5 per cent, but above the “bear case” of sub 5 per cent. He also championed the current Chinese government headed by premier Li Keqiang as making significant attempts to enact positive change in China and remove corruption.

Asked about valuations in markets, Mr Bolton said US valuations were “not expensive, but high against history” meaning the market was “not in danger, but flashing an amber light”.

On the other hand, he said China stockmarket valuations were “very low against history” and as far as two standard deviations below their long term level.

“There has been a four year bear market in the A-share market,” he said.

The manager added a Lehman-type event in China was “extremely unlikely” and that those who feared China’s debt-to-GDP levels were not taking into account the make-up of it – suggesting because it relates to investment spending and not consumption there was less of a concern.

While the manager may not have had the time he expected in China, his record on the Fidelity Special Situations fund – subsequently split into two after his retirement – will always stand out in the chronicles of fund management.

He turned a £10,000 investment in 1979 into £1.47m by the time he retired from Special Situations – a feat few others have come close to.

Key observations by Anthony Bolton after a 35-year career

Time horizon

“So much money is short term focused.”

While Mr Bolton acknowledged technology had irreversibly changed the fund management industry, he was keen still to highlight something firmly in managers’ control – how long they invest for. He said Fidelity’s “real opportunity” was to look further ahead than peers because this was “a less crowded space”.

Technology

“Nowadays nearly everyone has the same information so it is more about interpretation.”

Mr Bolton said the market was more competitive 30 years ago as it was possible to get information others didn’t have. He added it was possible in the 1980s to find companies others had not heard of, but that because of technology this was no longer possible.

Corporate governance

“[Corporate governance] in China is a euphemism for, ‘Are the figures real and is the management lying to me?’”

The manager met corporate governance challenges in China – notably when stocks he held called Sino Forest and China Integrated Energy were hit by fraud allegations, which they both denied. Speaking last week, Mr Bolton said corporate governance in China was tough, claiming “the Chinese are great liars”. He said he met some of the worst companies there that he had met in his career.