Manager of the same fund since 1979 and having gleaned a wealth of investment knowledge, Anthony Bolton will soon hand over the reins. Kira Nickerson talks to the man with a reputation for being one of the UK's leading fund managers
Investor psychology remains governed by fear and greed but their reactions to market events may be quicker these days, Fidelity Special Situations manager Anthony Bolton notes. In looking back over his 28-year term on the UK fund, he highlights a number of key changes in both the City and the way in which funds are managed. "It used to be all about getting the information that no one else knew, now it is how it is interpreted," he says. But today the City itself has become a meritocracy where investment banks, once a small influence, are now a huge part of the system. The influence of hedge funds has emerged and the use of derivatives has grown, all of which Bolton says has led to a more professional market. Refraining from singling any one big change as more important than the others, Bolton says they all have incrementally changed the game.
Managing and mentoring
Throughout his years Bolton has gained a reputation as one of the leading fund managers in the UK industry. As a fund manager, he says he has always enjoyed identifying opportunities that are being overlooked by other investors and seeing them come to fruition, as well as meeting company management and questioning them in depth about their business.
But at the end of 2007 he will step back from managing the group's flagship Special Situations fund and his Special Values investment trust, the last of his portfolios to handover to successors. "I will miss the excitement of spotting a winning stock opportunity, but I will still be close to the action," he says.
While not strictly retiring, Bolton will continue at Fidelity working with and mentoring analysts, recruiting new staff and having input into investment processes. "It is also my intention to write a second book," he reveals. "It will go into more detail of my investment process, how I go about things, my tactical analysis - something the last book didn't cover in depth." The book will initially be available to Fidelity staff, as part of his mentoring role, but he may look for wider distribution later.
Mentoring is something Bolton has been working on for a number of years and while it can be difficult passing on experience and knowledge, he says he tries to achieve this in a number of ways, from simple discussions and explanations of his thought processes, to leading by example.
He says: "There is constant interaction between portfolio managers and analysts at Fidelity and we all learn from each other. I am always happy to share my views and experience with colleagues but at the end of the day we are each responsible for our own decisions."
Known for his contrarian style as much as his value outlook, Bolton has developed a solid reputation over the years, due in part to his consistency of not only returns but also in managing the same fund since 1979. "I think consistency is essential if you are to serve investors well over the long term," he adds.
According to Morningstar figures, Fidelity Special Situations has gained 145% over the five years to 10 September but it is his longer-term track record that investors and peers envy. A £1,000 investment made on the date of its launch would have turned into £145,855 by the end of July this year.
In building his track record at Fidelity and being one of the longest standing fund managers on the same portfolio in the UK industry, Bolton's views and opinions have drawn attention and he has accrued a certain amount of press coverage over the years, most notably in 2003 when he made headlines for his stance on a corporate action with one of his holdings, Carlton, which garnered him a number of new nicknames including the 'Quiet Assassin'. At the time the issue was said to have shown the power of fund managers and what they can influence if they take a shareholder's stance in the corporate actions of their holdings.
Bolton says: "I didn't want the publicity at all. We believe discussions are best had behind closed doors - between investors and the management, generally this is much more productive and better for all parties."
While continuing not to comment in detail on individual holdings, more recently it seems his market views are more forthcoming, although Bolton says his comments are not necessarily more frequent but perhaps stronger attention is being given to them.
Splitting a fund
Another case in which Bolton's name found its way to national headlines was the first stage of his transition and eventual departure from UK Special Situations.
Over the years he has also managed a UK investment trust as well as some European retail funds, but he has stayed the longest on UK Special Situations, which grew to reach more than £6bn in assets - making it, at the time, the largest retail portfolio in the country. To address capacity concerns and for other reasons, Fidelity decided last year to split the fund into two mandates - UK and Global - with Bolton remaining lead manager on the UK portion only.
The split of the portfolio, an unheard of event in the open-ended funds world, was criticised by many at the time and few may have realised it was Bolton's idea.
"Given the strong flows into Special Situations over the past few years, I believed it was necessary to act straight away to forestall any performance issues that might have arisen from the fund's continued rapid growth. The logical evolution was to extend the fund's overseas exposure beyond the 20% limit it had and so open up many new investment opportunities.
"The world has changed immensely since I launched Special Situations in 1979. Investment is now a global business and information on international companies flows freely. Indeed, few industries are genuinely domestic nowadays: many companies derive much of their revenues overseas, compete with international rivals and supply customers around the world."
Bolton says in examining the size issue he did consider a gradual shift in the portfolio to a more equal division between UK and international stocks. In the end, he says he felt two smaller funds with distinct mandates, rather than one fund with an unusual set of investment objectives, represented the best way to offer the fund's investors the greatest chance of continued strong returns.
Fund changes and capacity issues
As Special Situations grew Bolton had already been making changes to how it had historically been managed, some due to the potential capacity issue. The fund has always had a small and mid cap bias but in recent years he has moved up the market cap scale while at the same time diversifying out in terms of the number of holdings within the fund.
The move into larger companies was, and is today, due in part to valuation opportunities but Bolton says at the time he made the move he also took the size of the portfolio into consideration, wondering what would happen when at some stage the fund needed to be moved back down into smaller companies.
"Everyone always asked me when it was going to be too big. I hadn't been there before either. I did have the advantage though of having US colleagues who I could ask for advice in running a big fund."
As to the continued market cap split within the fund, he says: "I've still got about half the fund in large-cap companies, which is the most I have ever held at this end of the cap scale. Larger-cap stocks also offer greater liquidity which is beneficial in this type of environment. Having said this, I still have around a quarter of the fund in mid-cap stocks and around 13% in small caps where I have found opportunities."
Current market environment
In looking back over the years Bolton says one of the most difficult markets was in 1987 but personally and to the fund the UK recession in the 1990s was a tough time for returns as lot of smaller companies were under pressure. However, in comparing recent market turmoil with past events Bolton says he sees more parallels with issues he saw at the beginning of his career in the 1970s - the last time there was a big financial crisis.
At the heart of the situation today, he says, is that people have invested in things they thought were safe only to find out they weren't, evoking a cautious and risk adverse attitude. And Bolton doesn't see that the situation today will resolve itself quickly.
"My gut feel is this consolidation will be longer than the previous two we've seen over the last 18 months, because there's more behind this and it will take a while for the credit markets to sort themselves out. I remain cautious but a correction like we've seen over the last few weeks will always throw up opportunities for an investor like myself to pick up stocks I think have been over-affected, or stocks I was waiting to buy and felt were slightly too highly valued before." n
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