Anthony Bolton has turned positive on shares. Why does Britain's most famous fund manager believe this is the start of a long-run bull market?
Best known of the British fund managers, the highly successful Anthony Bolton has turned positive on shares, and sees this as the start of a long-run bull market.
Born in 1950, Bolton graduated from Cambridge with a degree in engineering and business studies and went straight into a career in the City. At the age of 29 he joined Fidelity, and has stayed with it ever since, currently holding the position of President of Investments.
Fidelity Special Situations
But it was as manager of Fidelity's Special Situations Fund that Bolton really made a name for himself. His fund delivered a 20% annual return over a 25 year period, compared to 7.7% for the FTSE All-Share Index.
It wasn't all plain sailing, though, and there were long periods of under-performance during that time. Bolton has now retired from active fund management, and takes more of a mentoring and strategic role within the company.
He takes a generally contrarian approach to investing, as one might guess from the title of his latest book, Investing Against the Tide. This involves seeing the swings in the market as opportunities, and not being afraid to buy what's unpopular.
Much of his success has been in turnaround situations, such as the retailer Next (LSE: NXT) in the 1990s, where an ailing company is restructured, refocused, and revitalised. A key element in this approach is to meet with the management and satisfying himself that they know what they're doing and can execute their plans.
In the process, mistakes will be made, and he sees that as an integral part of the job. Staying cool and calm in the face of both mistakes and successes is a hallmark of his style. "Being unemotional is very important."
While he accepts the difficulties in trying to time the market, he doesn't shy away from that challenge. Using technical indicators and charts, he attempts to establish where we are in the cycle and invest accordingly.
This approach led him to conclude that the bear market was not over in September 2008, as commodities and mining shares had not yet collapsed. By January 2009 these sectors had halved in value, and Bolton was predicting a recovery in equities.
In recent weeks, he has announced that he sees the current rally in share prices as the start of a new bull market, and not the bear market rally that so many commentators are predicting. His reasoning:
- From his analysis of previous bear markets, in terms of length and severity, he believes we've passed the low point;
- He regards sentiment as being at a low not seen since the 1970s, despite some recent improvements. This has led to investors holding historically high cash positions -- money market funds in the US are now half the size of the stock market, compared to just 20-25% in previous lows; and,
- On many metrics, stocks are on historically low valuations.
"All the things are in place for the bear market to have ended." He rejects the view that it's different this time, and that we need to throw away what we've learned in past 35 years. Specifically, he does not expect the S&P 500's low of 666 to be revisited, and anticipates this rally lasting for several years.
He's bullish on pretty much all risk assets -- equities, high-yield bonds, commodities, property -- but not keen on government bonds. In particular, he likes consumer cyclicals (retailers, automotive, construction), technology, financials, and value stocks in general.
While he expects commodities and related shares to rise, he does not expect them to lead the pack like they did in the last boom, for the simple reason that the sectors that led one bull market rarely lead the next.
Bolton's belief that patterns repeat themselves and can be exploited, blended with his contrarianism and commitment to fundamental research, has made him the top fund manager in the UK. As he once again swims against the tide of investor sentiment, all eyes will be on him, and many will be hoping he's right.
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