Twenty-seven years ago, a shy 29-year-old engineering graduate from Cambridge University left his job as a trainee fund manager at an obscure South African investment company in London. In a move that some of his colleagues regarded as foolhardy, he had accepted an offer to join a little-known private American firm that had never sold an investment fund over here before, but thought that Britain under Margaret Thatcher — who had been elected just a few months earlier — might be a good place to try to break into the European investment market.
At the time few people had any idea that this seemingly intemperate career move would help change the face of the funds business in Britain and launch Anthony Bolton, the unassuming individual in question, into arguably the most successful professional stock-market investment career that this country has yet produced. Over those 27 years since starting his Special Situations fund for Fidelity, Bolton has become the Harry Potter of the investment world, conjuring up and sustaining a miraculous compound return of 20 per cent per annum for his fund. Thanks to the magic of compounding (once described by Einstein as the eighth wonder of the world), this is enough to have turned every £1,000 invested at launch into £130,000 today.
No other British professional fund manager has sustained such an exceptional rate of return for so long; indeed, nobody else in his chosen sphere of operations comes close. The margin by which Bolton has outperformed the FTSE All-Share index of London stocks is barely 1 per cent less than that by which Warren Buffett, the so-called Sage of Omaha who is usually held to be the planet’s smartest stock-market investor, has beaten the equivalent US market index over his 50-year career.
Allied to the formidable marketing clout of Fidelity, a privately owned Boston firm that ranks as the largest retail fund business in the United States, the innocuous-sounding UK Special Situations fund that Bolton runs has helped propel his employers from nowhere in 1979 to the number one position in the retail funds market today. With some £6 billion of investors’ money in his care, Bolton’s fund accounts for nearly 2 per cent of the entire unit trust business in this country.
Not the least remarkable feature of this phenomenal track record — which defies the findings of a thousand academic research papers that no professional investor can beat the market by so much for so long — is that he has never used debt, derivatives or any other kind of financial engineering to lever up his returns, as George Soros and other hedge-fund superstars routinely do.
Bolton’s success has come instead the old-fashioned way, by picking stocks on a contrarian basis with the help of reams of detailed financial analysis, a nose for hidden value and an acute sense of timing. Bolton’s best results have come from picking shares that nobody else wants to buy, buying them on the cheap and flogging them back to other investors when they come round to his way of thinking. He is particularly good at anticipating what the investment herd will want to own 12 to 18 months ahead.
Not for much longer, however. Three weeks ago, in a move that foreshadows the impending demise of Harry Potter himself, Fidelity finally confirmed the details of its star fund manager’s retirement, setting the end of next year as the date when he will hand over his fund to a successor. As a precursor, the fund will be split in two, with one half of the assets remaining in Bolton’s hands until his retirement date, and the balance transferred to a new global equity fund to be run by a hitherto unknown Fidelity fund manager, Jorma Korhonen, a 40-year-old Finn.
After months in which scores of names of possible successors have been bandied about, the decision to split the fund and appoint an unknown successor has caused surprise and some consternation among independent financial advisers and brokers, many of whom earn handsome commissions from promoting funds to their clients and who had been hoping for a more instantly saleable name as a replacement. (The Special Situations fund currently earns Fidelity upwards of £50 million a year in management fees, of which up to a third can be passed on to IFAs and other intermediaries in commissions.)
As a man who regards implacability as an essential key to success in investment, Bolton remains characteristically unflustered by all the fuss, insisting that Korhonen is his personal choice, and that giving the fund a global as well as a UK mandate sensibly reflects the way that the investment world has changed since he began his career. ‘Were I starting out today, I would be looking to run a global, not a UK Special Situations fund,’ he says.
Although IFAs and the media have been clucking over the deal, there seems no doubt that many fundholders will stick around to see whether Korhonen proves to be as good a choice as some of Bolton’s stock selections. Will another British fund manager ever rack up a track record that compares? Maybe not, if only because bright young investment stars these days can make much bigger sums for themselves more quickly by joining hedge funds. With luck they can retire in a matter of years — long before the professional performance measurement police can get to work on dismantling their record.
It is only the real market addicts, of whom Anthony Bolton is undoubtedly one, who see the need to go on working in such a high-pressure job for a quarter of a century or more. The fund manager who comes nearest to matching Bolton’s record of exceptional performance over time is probably Neil Woodford at Invesco Perpetual, another dyed-in-the-wool ‘value’ investor. A list of other exceptional talents whose funds can still be bought by private investors include Philip Gibbs at Jupiter, Derek Stuart of Artemis, Ashton Bradbury at Old Mutual and Sandy Nairn at Edinburgh Partners. But they have a tough act to follow.
Jonathan Davis is editor of Independent Investor.
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