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This bull market hasn’t yet peaked, says Anthony Bolton

01 April 2014

The star Fidelity manager is retiring from running money and shares his thoughts on how the market has changed over his career.

By Thomas McMahon,

Reporter, FE Trustnet

Investors have yet to see the top of the market in the US and developed world, according to Anthony Bolton, retiring manager of the Fidelity China Special Situations Trust.

ALT_TAG IMA figures saw record outflows from US equities last month as investors took fright at the valuation on the market after a year of strong growth.

However, Bolton (pictured) says that while valuations are looking stretched in the US, they are not yet flashing warning signals.

“Normally at tops you see more behavioural signals, but there are special issues this time because of tapering,” he said.

“If you look at an amalgam of valuations it’s expensive but if you look at an average of those it’s not at the top of the range.”

Data from FE Analytics shows that the US market has pulled away from the world market over the past three years, and many investors worry that this trend will reverse.

Relative performance of US to world market over 5yrs

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Source: FE Analytics

The manager says that the better opportunities on valuation grounds are in China, but investors would be wrong to think that the market has already peaked in the US.

Bolton retired yesterday from fund management, handing over the Fidelity China Special Situations fund to Dale Nicholls.

He will continue at Fidelity at a directorial level, and will be involved in training the next generation of fund managers.

Bolton is best-known for his superlative record as manager of the Fidelity Special Situations fund, which he ran from 1979 to 2007.

The fund hugely outperformed the FTSE All Share over this period, returning 2913 per cent to the 984 per cent of the market.


Performance of fund vs index under Bolton

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Source: FE Analytics

The manager says that the UK market has changed enormously since he began his career and become more competitive.

“It’s a much more competitive and challenging business today than it was 30 years ago,” he said. “The whole nature of the business has changed, technology has transformed it.”

“In those days it was about collecting information other people didn’t have, now everybody has the same information, so it’s much more about interpretation.”

“The information other people don’t have tends to be small things. You used to be able to find companies other people hadn’t seen in Europe in the ‘80s.”

“The quality of people in the business has risen over time. The hedge fund world which has developed over time has increased standards.”

Bolton says that it has become harder for investors to gain an informational advantage with the advances in technology and in particular the internet.

“How do you stay ahead? You have to try new things. If you do stay the same you won’t stay ahead. Twenty years ago we were doing something quite different at Fidelity in terms of visiting companies, but we no longer stand out from the crowd as we used to in this respect.”

“One area which is very interesting is using business intelligence: finding out detailed stuff about companies in China. We use it to differentiate the good companies from the bad.”

Some commentators suggest these changes have made it harder for active managers to outperform by making markets more efficient.

The argument is that as more information become available to more people it becomes harder to spot something others haven’t and which gives you an investment advantage.

Recently Warren Buffett has expressed cynicism about the ability of active management to add value, advising his family to put their money in index trackers in his most recent shareholder letter.

However, Bolton says that the technological changes in the market are a double edged sword which brings benefits to active management as well as threats.

“Markets have become more efficient, and for the average manager that has made it tougher,” he said. “But I think there’s an aspect which has made the job easier.”

“There is so much money nowadays with a very short term focus, investing and only looking to short term results where the opportunity is in looking further ahead.”

“Understanding what’s going to happen in the next two years is a much less crowded trade.”

Bolton’s Fidelity China Special Situations investment trust was launched in April 2010 and had a period of poor performance after the first six months of its life. However, recent performance has improved, with the fund now ahead of its benchmark since launch.


Performance of trust vs index since launch

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Source: FE Analytics

Bolton says that he made the wrong call on the direction of the market as a whole.

“The most disappointing thing for me is that I was wrong in that I thought the market would go up over four year,” he said. “The trend has been against me and it’s a geared fund as well.”

“I made a big play on being in the “new China” and the rewarding thing is over the last 18 months that has come into its own. Some stocks have done really well.”

Fidelity China Special Situations is available through Trustnet Direct and has ongoing charges of 1.7 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.