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Sipp Investor: what Anthony Bolton teaches us about fund selection

Rob Kyprianou explains what he looks for in a fund, and shows how his wariness about 'style creep' proved its value during Anthony Bolton's foray into China.

Sipp Investor: what Anthony Bolton teaches us about fund selection

Following another strong quarter for his Sipp portfolio, Rob Kyprianou explains how he monitors the performance of the funds he holds.

Beating my benchmark

The flattish close could not detract from what was a good first quarter for equities. My self-invested pension portfolio (Sipp) benefited, rising by 8.2% compared with 4.3% for my benchmark, which comprises 25% UK gilts, 50% UK equities, and 25% euro equities.

My overweight to equities and heavy underweight in bonds – in fact I owned none in the quarter, compared with a 25% weight in the benchmark – were the main drivers of this relative outperformance of plus 3.9%.

Within equities, the portfolio’s barbell of overweight US and emerging market equities and underweight UK and european equities also added value relative to the benchmark.

As I flagged up in last month’s article, after a strong recovery in the previous six months I felt that the outlook was now more balanced for equities, and that I would be using March to eliminate my overweight equities position.

Selling down emerging market equities

Given my very heavy overweight position in emerging market equities (37% versus 0% in the benchmark), this would be the area of focus, selling the extra holdings I had accumulated in the summer of last year when these markets had been struggling.

My emerging market holdings are held in six funds managed by three fund management houses. Although all have served me well, I have issues with all the funds, so I have 'top sliced' each holding. Specifically:

  • Aberdeen Emerging Markets – a star fund in this sector, but it has grown very rapidly to the point where even the management house is concerned enough to ask for no further promotion of the fund. In my experience, such concerns should not be ignored: caveat emptor.
  • First State’s Global Emerging Market Leaders , Asia Pacific Leaders , Indian Subcontinent and Greater China Growth funds. All good funds in their sector, but First State’s broad excellence in emerging markets has meant that it has become responsible as a management house for more than 20% of my portfolio, which is a lot to have under one roof.
  • Fidelity South East Asia fund. A long-running core holding in my portfolio whose performance had seen it rise to more than 10% of my portfolio – a lot to have in one fund.

All the sales were converted to cash, as I was waiting to see how markets and market news would unfold before deciding on my next asset allocation move. So at the start of the second quarter my allocation to overall equities is neutral at 75%, although the barbell remains in place, with the balance in cash – I still hold no bonds.

Managing your fund managers

My actions in March show how important it is in my view to manage your asset allocation and your fund managers. I believe in active management, but I believe it is crucial to pick your managers very carefully if you outsource any of the management of your wealth.

In my case, I do my own asset allocation, but outsource stock selection to fund managers. This suits my relative strengths and weaknesses, and the time and information flow available to me. In my investment process, asset allocation comes first, but then I carefully search out good managers in each asset class chosen.

I spend considerable time performing this search – there is nothing more frustrating than making the right asset allocation call and seeing it fritted away by poor stock selection. Also, poor asset allocation can be mitigated (rarely saved) by good management of the underlying stocks.

What makes a good manager?

After 33 years in the industry, I hopefully have a leg-up in understanding what makes a good fund manager. There is no one rule or one way of managing money successfully – if only it were that simple.

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13 comments so far. Why not have your say?

Linda Rushmore

Apr 13, 2012 at 08:48

So what has Bolton taught us then?

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Apr 13, 2012 at 09:15

The main flaw with all this analysis is that at the end of the day you are investing in companies and not in markets. All this talk of overweight US etc is far too simplistic, so that analysts, preying on our greed, can peddle their wares. Invest in some sound companies, bank the growing dividends and sleep soundly at night. Ditto, if you must, for fund managers.

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Bob saxton

Apr 13, 2012 at 09:21


Anthony Bolton has taught us to stick with what we know. He was good when he was with Special Situations and European Values but poor when he went into China, an area difficult to research and outside his experience,

Back experience endorsed with success. Invest in companies you are or can be familiar with. Retailers, go in their shops, suppliers check their service, builders see who is building nice houses that sell.

Beware of people under false colours. IFAs, life coaches, double glazing surveyors, consultants, Truly they are all salesmen. They want to persuade you to give them your money.

Bob the electrician

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Keith Snell

Apr 13, 2012 at 09:38

My only rule now is invest yourself and do not employ so called professionals, most brokers are at best just about capable of keeping up with a tracker fund.

Informed amateurs should do better, for what it is worth I never have more than 10%in any one investment and usualy have at least 10% in cash, the rest is split approx 50/50 between managed funds and equities. I do not hold bonds or gold at present, although gold is always kept in mind if soveriegn debt problems dictate. This approach works well provided you research your investments well. I have tried 3 platforms and for me Hargreaves Lansdown offers an unrivelled service for amateurs.

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Dennis .

Apr 13, 2012 at 09:52

Interesting article in FT this week about Fidelity implying that overall they have lost the plot on most of their funds.

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Apr 13, 2012 at 12:26

The author has clarified my mind about management selection. Many thanks. As for readers' adverse comments on Fidelity, yes they lost much ground recently, but they are still above average, with 64% of their funds in the top 50%, according to the FE crown awards.

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Alun Williams

Apr 13, 2012 at 12:50

I think the Bolton collapse was inevitable. Basic rule is - new product, new market, new leader with limited market experience - MAJOR RISK!

The issue I have is the cost and performance of funds. No matter which way you look at it, everyone takes their slice before you get your crumbs at the end. Solid stocks, good dividends and buying at the right time, or a simple low cost tracker is my way forward.

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Apr 13, 2012 at 14:02

Bolton's China Trust was a cash cow for Fidelity at 5% initial charge, pushed by most houses on launch including HL. I stayed away thank goodness.

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Apr 13, 2012 at 19:21

China is a black hole. I certainly didn't follow Bolton there as I could not see clearly how his skills fitted that new world. He had a wonderful track record with his previous funds but in the far east, and especially in China, you need someone with a long track record in that region.

Both the funds that his former Special Sits was split into have become distinctly lacklustre since he left.

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oxford dolphin

Apr 13, 2012 at 19:37

Horses for courses: like the Grand National.

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john cornford

Apr 13, 2012 at 20:09

When you talk about style creep, perhaps you should include size creep. Most commentators on managed funds seem unaware of (or for marketing reasons don't want to highlight) the boost to relative performance that comes as a fund is growing from scratch on money flowing in on the back of performance from just a few good initial stock selections. And conversely the dent in performance if for any reason it has to cope with redemptions, or just with becoming too big

A contentious subject for academic research !

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Dennis .

Apr 13, 2012 at 20:45

There is a parallel case arising with Standard Life UK Smaller companies which is now in the doldrums. Harr Nimmo is moving to SL Global smaller companies, HL has already given it a wealth 150 rating yet it's only been going since January and the performance so far is about average.

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Apr 14, 2012 at 12:13

Anthony Bolton's management skills were not the issue. Setting up camp on someone elses turf was. He was lied to and conned something rotten regarding the true potential of the companies he invested in. Maybe I'm too cynical, but this story seems far too common in the developing world for my liking.

It reminds me of a report I read a while back where a leading US investment bank decided to set up a farming venture in the Ukraine.

On paper the project looked to be a sure winner. The world is hungry for increased grain production. Ukraine has some of the most fertile and easily tilled land. Modern machinery and state of the art land management can produce spectacular yields 3 and 4 times as high as was achievable only a decade ago.

The Ukrainians were very enthusiasic and cooperative and soon made land available. The bank engaged a manager with an excellent track record, and gave him free rein to purchase all the machinery he needed, including laser guided ploughs and harvesters; computer/GPS controlled grain monitors and fertiliser applicators.

What could possibly go wrong? Well apparently they had no trouble in finding employees with suitable experience and education, but the problem was that whole lorry loads of seed corn, fertilizer, and diesel mysteriously dissapeared overnight and tractors were spotted working the fields of other farms.

So maybe it's better to stick with the devil you know.

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