Anthony Bolton - 2011 China Fund Outlook

Investors are right to be concerned about China’s medium-term future, according to Anthony Bolton, the manager of the Fidelity China Special Situations trust.

Bolton says he does not want to belittle investors’ concerns about the country’s one-child policy and the low number of young people growing up to support the economy.

According to Bolton, the authorities will most likely have to offer the middle class greater freedom, not just greater wealth, which would require major political reform.

On the economy, he says he is concerned in the medium term about sharp rises in the real estate market in Hong Kong in particular, and about Hong Kong’s ultra-loose monetary policy, which is pegged to America’s.

He admits that if the country’s high inflation takes off more than he expects, it might pose political problems for the authorities.

However, in the short term Bolton says the authorities have the policy tools to manage the country’s economic pressures, including the monetary policy to balance inflation and growth.
“It’s unlikely the Chinese are going to do anything radical [with monetary policy]. It’s unlikely they’re going to stop the economy in a big way in a year where they will have policy changes,” he says. (article continues below)

He adds the economy still looks to be moving away from an excessive emphasis on exports and more towards domestic consumption.
“A lot of people worry about the demographics of China in the medium term, and I don’t want to belittle that, but the urbanisation process is more important to driving consumption,” he says.
However, Bolton observes investors need to remain agile in pursuing domestic consumption themes in China.

He has taken stakes in suppliers to domestic consumer companies, rather than the companies themselves, whose share prices look high in Bolton’s opinion.

Overall, Bolton says the problem is not so much with finding good company management in mainland China, as with finding stock prices which look attractive.

So far, he has focused primarily on Hong Kong and American-listed businesses, rather than Chinese mainland shares, which he says have typically been valued less attractively.

However, he says he will be looking more intensively at Chinese mainland A shares this year following falls last year.

Fidelity has also received an indication from the Chinese authorities that it may receive a permit to invest in mainland China.

On a company level, Bolton says he places shares into two broad buckets: businesses which are growing less strongly, but are relatively cheap, and firms which are growing more strongly, but have fuller valuations.

He says he would have been less willing to buy the latter type of company when he was investing in Europe, but that he has to make allowances for differences in the Chinese market.

Source: FundStrategy

Artemis Strategic Assets - William Littlewood Update

It was interesting to read that William Littlewood has recently reduced his gross long equity position from 86% to 84% whilst also increasing its short positions slightly.

I have a substantial amount of my ISA in this fund and it is one that I regard as a core holding due to the UCITS structure and Littlewood's multi asset approach. This is one of the funds that I therefore do not look to reduce my holding in during times when the markets look overbought.

With Longview Economics also pointing to a return of risk aversion as supporting the overbought indicators in the next month or two, there definitely appears more more potential risk and downside that upside potential.

Littlewood says if shares continue to rise from here, he will trim the fund's equity exposure further.

"Why?" says Littlewood. "Because, from such levels, and given the uncertainty of the situation with regards to sovereign debt, shares look vulnerable to a disappointment.

"Secondly, opportunities (and valuations) are of course relative. At the margin, if equities go on up we would simply see better opportunities elsewhere - for example, in bonds."
Littlewood has continued adding to the fund's large-cap holdings, mainly on the grounds of relative valuation.

"Stocks large enough to be in the FTSE 100 and their international equivalents now account for 73% of the equity long portfolio. We like, selectively, US large caps," he says.

The manager belives the European sovereign debt crisis remains the biggest threat to investors.
"Our view, long espoused here, is that this problem will be with us for years to come. Ireland was rescued with a €85bn package. This might keep that country going for a few more years.
"But given the huge levels of debt and the ever deteriorating demographic pressures, Europe will not be able to save itself. Next in line for a bailout will be Portugal, followed by Spain.
"If Ireland with a population of 4.5 million needed €85bn, what will Spain - with a population nine times larger - require?"

He adds: "A Spanish melt-down would dwarf the combined problems of Ireland and Greece. Even if the EU extends its bailout, the point is net income and gross habits are simply unsustainable. Will Spain swallow the necessary medicine? We will see."

Read more: http://www.investmentweek.co.uk/investment-week/news/1937566/littlewood-trims-exposure-vulnerable-equities#ixzz1BQdezbKG

All That Glistens - Gold Funds

Gold has been a phenomenal investment story over the last 2 years, and it continues to attract plenty of interest and investment across both instutional and retail investors.

So what are the prospects for gold in 2011? In today's FT, (http://www.ft.com/cms/s/0/ace3ea64-09ee-11e0-8b29-00144feabdc0.html#ixzz18TVuqVbX) Fredrik Nerbrand, global head of asset allocation at HSBC. “Only a marginal increase in the propensity to hold gold as an investment could have a dramatic effect on the gold price.”

One of my favourite fund managers - William Littlewood, manager of the Artemis Strategic Assets funds, prefers to gain exposure through an ETF by ETF Securities - (GBS.L) ETFS Gold Bullion Securities which has an annual management fee of 0.40%. When considered how to invest in gold, understand how the fund your are investing in looks to profit from an increase in the price of gold.

The following chart looks at 2 popular means of investing in gold:- Blackrock Gold & General and the ETFS Gold Bullion Securities Fund.

HSBC built a senario analysis for gold prices by 2020. Its model took into account the impact of expected declines in jewellery and industrial demand as a result of rising prices and the offsetting increases in scrap supply and investment interest.


The model suggests gold prices could rise to $3,305 an ounce by 2020 if fund managers increase their relative gold weightings to 0.5 per cent, even if there were no price gains for equity and bond markets over the next 10 years.

 But gold prices could reach $6,424 an ounce by 2020 under the bullish senario - a gold weighting of 0.5 per cent and 10 per cent gains for asset prices.

 Mr Nerbrand emphasised the analysis was not intended as a price forecast but as a framework for mapping out possible senarios.

Anthony Bolton - Fidelity China Special Situations A Shares

Anthony Bolton’s China Special Situations trust has received the go-ahead to invest in mainland China's A shares this week.

I am a big fan of Bolton's - his record more than speaks for itself, and his timing more often than not right. Investors have rushed to snap up shares in the investment trust, which has been reflected in the trust's NAV. This has recently forced the issue in the declaration that 'C' shares will be released to meet the current demand.

China still seems a difficult call for most. Do you go with the growth story and hope that it translates into capital growth for it's companies, or do you view it as a bubble waiting to happen.

Either way, Bolton will apply the same carefully selected processes to stockpicking and looking for those recovery plays and undervalued stock.

In his book, 'Investing Against the Tide', Bolton outlines the key principles of his investment process:
• If you're investing for the long term don't be concerned about short-term volatility.
• Keep a 'watchlist' of stocks or funds you are interested in and review your position on them every three months.
• Don't be afraid to go for something or somewhere out of favour.
• Use any insider knowledge of a sector you might have gained from your day job.
• Trust your instinct, but avoid emotional attachment to your holdings.

Time will tell whether he was right to come out of retirement for one last hurrah.

Japan - A Trade of The Decade?

Japan has been making some headlines as one of the contrarian trades of choice for some time. This weekend was nothing new therefore, when James Ferguson in The Times decided to tip Japan to outperform based upon. The argument is simple, the Nikkei averages a price-to-book of half that of the FTSE shares and therefore below the actual book value.

Japan has made a mug out of plenty of people, and if you keep trying to put forward a case for Japan then you may eventually get it right. From my own perspective, I like the fact that it is not overly expensive and has some great companies. Whilst I am not saying that Japan can't and will not become cheaper, it has led me to add a significant proportion of my asset allocation into the Invesco Perpetual Japan fund. Time will tell if it was a trade of the decade, or just another false dawn in the land of the rising sun. 

Predicting the Markets

Predicting the markets is impossible, everyone knows this. However, when you come across people that have the ability to make the right calls more often that not, it makes the management of your portfolio an easier task.

Once such person that met this criteria was Teun Draaisma. Draaisma was working at Morgan Stanley until June 2010 as their European strategist. Sadly, his move to TT International to manage a hedge fund has meant that he no longer offers public commentary.

Before the credit crunch, Draaisma was consistent in his message of sell, sell, sell. During the darkest hours, Draaisma made the right calls by telling investors to get back into the market.

I would be interested to hear from you which sources and commentators you listen to in order to make the correct calls in allocating your portfolio and protecting your wealth at the key times.

Schroder UK Alpha - Buxton: 25% Rise in 2011

An article that caught my eye over the weekend was from experienced fund manager Richard Buxton on the prospects for equities over 2011.

Buxton states that UK equities could rise by as much as 20-25% during 2011, fuelled by leaner companies with strong profits being reported and cash on the sidelines.

Seeing the FTSE at it's current level (5770) makes me wonder how much positive upside their is going into 2011. Will company profits warrant a return to a FTSE all time high... I'm not so sure.

Source Link - Citywire