Tag Archives: Anthony Bolton

A Guru in China (part II)

1 Dec

Anthony Bolton updated investors via webcast today on his thoughts about investing in China. There were some interesting insights regarding the composition of his China fund at Fidelity.  I’ve previously written about Anthony’s bold move to move to China (https://ravendragon.wordpress.com/2010/11/18/an-investment-guru-in-china/ ). In that previous blog entry you will find a link to Bolton’s previous webcast, with more general China investment themes/insights. I will update this blog entry with a link to today’s webcast once Fidelity add it to their website.

What did we learn today?

  • 37.5% of the fund is in companies below US$1bn market cap. 35% of the fund is invested in companies with a market cap between US$1-5bn. This plays into Anthony’s themes of looking for growth companies, and companies that are less likely to be covered by the sell-side. The idea is that low coverage can equate with hidden value.
  • The presentation outlined all sector weightings. What interested me was that the fund is massively overweight consumer stocks (21.7% vs. an average of 5.5%). This plays into a macro theme that I’ve written about a number of times: the growing power of the Chinese consumer. Anthony talks of a 2-tier world when it comes to growth, with China outpacing the West (albeit slightly slower than the past decade). This 21.7% weighting clearly plays to that theme.
  • Top holdings include:

o   Bank of China in HK – If I understood correctly, this company has an effective monopoly in clearing!

o   China Unicom HK and China Mobile – Convinced that the data revolution will have a positive impact on Chinese telephony.

o   Ping An – Insurance. The State is slowly migrating its responsibility to the private sector.

o   Brilliance China – 50% JV with BMW. Expects them to sell 300k cars in a few years (up from 50k). This is part of a replacement cycle (including replacement of BMWs built in Germany). A highly recognized brand that’s underrepresented in the domestic market.

o   United Labs – working on insulin. Set to take on the dominant global players.

  • 2 of my questions were answered in the webcast:

o   With blue-chip US companies at historical lows, and the recent flows into EM/Chinese markets, do you think there’s likely to be pressure on Chinese markets next year?

Anthony answered with his investment thesis on the 2-tier growth world. He said that he is not concerned as he expects US growth not to return to its regular place for a while, and expects the delta to remain compared with Chinese growth. He added, however, that flows will indeed reverse if he is wrong.

This answer concerns me slightly. Why? There are key differences between US GDP and the S&P500. The former is characterized by domestic spending (mainly consumer), net imports, net borrowing, prefers a strong USD, and is captive to US taxation. The S&P500 on the other hand is global, driven by business spending (and note that global Capex spend is becoming less dependent on the US), is characterized by net savings, prefers a weak USD, and contains companies exposed to attractive tax rates compared with the US.

Granted the strength (or lack thereof) of the S&P is not the only driver of Chinese/EM markets. The risk is even lower for a fund that does not track an index. Nonetheless, I do envisage flows to the US pressuring EM markets in 2011.

o  My second question was whether Anthony sees a risk of rising interest rates in China impacting the market. He said that he feels that at some level rate increases can impact a bull market, but he felt that China is less sensitive than Western markets, mainly due to the fact that there is less consumer debt. As a side point, he said that’s why the authorities rely more on direct controls to lending and increased RRRs when as tools to control real estate and liquidity.

My question does not come out of thin air.  The Dow Jones Industrial Average was 875 on both the 31 Dec 1964 and 31 Dec 1981. Over that 17 year period US GNP grew 373%. By 31 Dec 1998 the Dow was up 10.5x to 9181.43. Over that 17 year period US GNP increased 177%. It’s no coincidence that at the end of 1964 long bonds in the US were 4.2%. At the end of 1981 they were 13.65%, and at the end of 1998 they were back down to 5.09%. There’s a lot more to say about this subject, and many other drivers of the markets (including psychology, and expectations). But interest rates do have a major impact in the value of all assets, and not just bonds!

Today with quantitative easing, economic stimulus, commodity increases, and flows into EM the risks are tilted towards an increase in interest rates from their historically low levels.

What else? He said he likes Gold, but is not bullish on other commodities.

An Investment Guru in China

18 Nov

Over the 28 years in which Anthony Bolton managed money for Fidelity, he delivered average annual returns of 19.5%. In April of this year the 60 year old investment legend came out of retirement and is betting his reputation on a China Special Situations fund. Since opening, the fund is up 27%. What’s more, he’s put GBP2.5m of his own money in the pot.

Why take such a reputational risk? Here’s the answer in Bolton’s own words:

“People have said to me: ‘Anthony, if it is a success, so what? But if it is a failure, you are going to ruin your record,’” “But in terms of what’s important to me, my reputation is not at the top of my list. I think this is one of the most interesting things I have done in my whole career in investment. You don’t want to get to the end of your life and say, ‘Why did I not have a go at that?’”

One has to admire that deep sense of curiosity. It’s surely that type of character that contributed to his record over the proceeding 28 years.

The first link below will take you to a 45 minute interview with Mr. Bolton, where he discusses his experiences. The interview covers many topics including his broad investment thesis, specific stock ideas, macro risks, as well as Chinese business management. The second link is to register for a live webcast on 1 December in which Anthony Bolton will update his investors on the fund’s performance, as well as his thoughts on the Chinese markets. Beneath the links, I note the major points from Bolton’s interview.

I find it enlightening to listen to a ‘guru’ such as Bolton. Even if one’s not invested in China, this interview contains much investing wisdom. I specifically enjoyed seeing the application of tested investing principals in a fresh market – there’s nothing mystical about Chinese markets – it seems one can make (or lose) money in the same way as in developed markets.

The interview:
https://www.fidelity.co.uk/investor/research-funds/investment-trusts/china-video-update.page

Register for the webcast: http://mediazone.brighttalk.com/event/Fidelity/125c0e943c-4426-intro

General Thesis:

· China is set to enjoy higher growth than the rest of the globe over the coming decade. Bolton talks of 8-10% growth per annum, versus around 2% in most developed markets

· A growing middle class is leading to a more consumer lead economy

· Chinese small and mid cap stocks are mostly under-covered by the street

Is there an asset bubble in China?

· There is a bubble in big city residential real estate

o This will lead to bad debts, but a lot of the prices / valuations are already accounting for this. In addition, a lot of the banks and local authorities have access to central government funds, which are deep.

· There is no bubble in the stock market

· Long-term general real estate outlook is good

Which investment themes are you playing?

· Consumer is a large play, though the definition of consumer is large and includes retailers, wines/spirits, autos, media, net, financials, and hotels.

· Agriculture is not a big play (though he does hold a large fertilizer name)

· 60% of the fund is in companies with market caps below $5bn

· 25% is below $1bn market cap

· There are 2 main groups of companies:

o Growth – <20x current year’s earnings (minus net cash). The valuations are usually at a premium to developed market peers, though growth is 20-30% annually. In these stocks he’s looking for business models that he’s seen work in Europe.

o Value – Trading at a discount, usually small and midcap. They are still growing at 10-15%!

· A lot of these companies have cash

· Time Horizon is not that different from US/EU companies. Roughly 18 months.

Other interesting points

· Management is getting much better

· Concerned there might be an informational disadvantage in holding A-Shares. Need more knowledge to increase the A-share portion of the portfolio

Long term concerns

· As the middle class get more mature, they will want more freedoms. How the government reacts will be crucial.

 

In the interview Bolton mentions 3 companies he holds and why he likes them. In my next blog entry I will take a closer look at those 3 holdings.

Zai Jian

 

 

http://mediazone.brighttalk.com/event/Fidelity/125c0e943c-4426-intro

Over the 28 years in which Anthony Bolton managed money for Fidelity, he delivered average annual returns of 19.5%. In April of this year the 60 year old investment legend came out of retirement and is betting his reputation on a China Special Situations fund. Since opening the fund is up 27%. What’s more, he’s put GBP2.5m of his own money in the pot.

 

The first link below will take you to a 45 minute interview with Mr. Bolton, where he discusses his experiences. The interview covers many topics including his broad investment thesis, specific stock ideas, macro risks, as well as Chinese business management. The second link is to register to a live webcast of Anthony Bolton updating investors on the fund’s performance on the 1 December.

 

I find it enlightening to listen to a ‘guru’ such as Bolton. Even if one’s not invested in China, this interview contains much investing wisdom. I specifically enjoyed seeing the application of tested investing principals in a fresh market – there’s nothing mystical about Chinese markets – it seems one can make (or lose) money in the same way as in developed markets.

 

The interview: https://www.fidelity.co.uk/investor/research-funds/investment-trusts/china-video-update.page

 

Register for the webcast: http://mediazone.brighttalk.com/event/Fidelity/125c0e943c-4426-intro

 

General Thesis:

· China is set to enjoy higher growth than the rest of the globe over the coming decade. Bolton talks of 8-10% growth per annum, versus around 2% in most developed markets

· A growing middle class is leading to a more consumer lead economy

· Chinese small and mid cap stocks are mostly under-covered b the street

 

Is there an asset bubble in China?

· There is a bubble in big city residential real estate

o This will lead to bad debts, but a lot of the prices / valuations are already accounting for this. In addition, a lot of the banks and local authorities have access to central government funds, which are deep.

· There is no bubble in the stock market

· Long-term general real estate outlook is good

Which investment themes are you playing?

· Consumer is a large play, though the definition of consumer is large from retailers, wines/spirits, autos, media, net, financials, and hotels.

· Agriculture is not a big play (though he does hold a large fertilizer name)

· 60% of the fund is in companies with market caps below $5bn

· 25% is below $1bn market cap

· There are 2 main groups of companies:

o Growth – <20x current year’s earnings (minus net cash). The valuations are usually a premium to develop market peers, though growth is 20-30% annually. In these stocks he’s looking for business models that he’s seen work in Europe.

o Value – Trading at a discount, usually small and midcap. They are still growing at 10-15%!

· A lot of these companies have cash

· Time Horizon is not that different from US/EU companies. Roughly 18 months.

· Other interesting points

· Management is getting much better

· Concerned there might be an informational disadvantage in holding A-Shares. Need more knowledge to increase the A-share portion of the portfolio.

 

Long term concerns

· As the middle class get more mature, they will want more freedoms. How the government reacts will be crucial.

 

He specifically mentions 3 companies he holds and likes. In my next blog entry I will write some notes on these, and take a closer look.

 

Zai Jian