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