Secrets Of Success: Big doesn't have to mean unwieldy

Bolton's exceptional performance as fund manager has been well documented. Beating the FTSE All-Share index over the past 25 years by an average of more than 6 per cent a year is an extraordinary achievement.

No other fund manager comes close to matching that record of consistency. Anyone who put money into the fund at launch has seen their initial investment grow a hundredfold in 25 years. The fund has outperformed the market in every seven-year period within that quarter century, and beaten the FTSE All-Share index in 99 per cent of all rolling five-year periods.

Two other aspects of that performance, as I discovered when researching my book on Bolton's career last year, are just as striking. One is that for 17 of these 25 years he was in addition running a European fund that also outperformed its benchmark (admittedly a less demanding objective).

An investment in Fidelity European at its launch in 1986 would have produced a sum when Bolton gave up running it that was six times what a comparable European index fund would have produced over the same period. No other fund manager I know has beaten the market so handsomely in two different regions simultaneously.

The second notable feature is that, while Bolton's investment style is well-known, it does not appear possible to explain away his track record by reference to the style factors that so often turn out to be the cause of fund managers outperforming the market over shorter periods.

Analysis carried out by independent analysts at both Hargreaves Lansdown and The WM Company for my book showed that Bolton's outperformance is independent of style factors, and simply the result of picking stocks better than other people - something that conventional wisdom says cannot be done consistently.

While it is true that his favoured hunting ground, small and mid-cap shares in the UK market, has done very well in the past five years, outperforming larger capitalisation stocks as a group, the rapid recent growth in his fund has not prevented him from continuing to produce above-average results.

His fund currently contains a much larger proportion of Footsie stocks than in the past (it has been up to 40 per cent), and until now the problems of handling such large inflows of investor money have not inhibited his performance.

In the light of what we now know about the fund's track record, it is instructive to look back at the way that it has grown in size.

As recently as January 1987, despite its impressive performance, Special Situations was still a tiny fund, with no more than £35m of assets. Its strong performance in the feverish market conditions of 1987, leading up to the October crash, led to a dramatic inflow of funds, with the fund topping first £100m and then £200m for the first time during the course of the year.

After the crash, the fund lost ground but, helped by renewed performance, briefly touched £300m in assets at the end of 1989. There followed the 1990-91 recession, which to date has been the only period when Special Situations fund has seriously underperformed the market.

It was not until 1994 that the fund again topped the £300m mark, but thereafter its growth continued steadily, topping the £500m mark for the first time in 1995 and £1,000m in mid-1999.

It is the growth in the size of the fund since the turn of the century that has been truly remarkable. Bolton's investment performance has continued to be very good - his fund has roughly doubled investors' money in the past six years, despite the 2000-2003 bear market - but the fund itself has simply ballooned in size to more than £5bn today.

The fund inflows have dwarfed those going into any other UK equity fund and raised the issue of whether the fund has become too big to manage.

It is small wonder, either, that financial advisers have been fretting over the succession plans to Bolton's funds for some years now. Putting their clients into Bolton's fund has been one the easiest ways for them to make money in the past few years.

Back-of-the-envelope calculations suggest that advisers and other intermediaries stand to make between £10m and £20m this year from so-called renewal commissions on the fund. The money is taken out of the annual 1.5 per cent management fee that Fidelity, like other fund managers, levies on investors.

So how will Special Situations fare in the future? Bolton says that the fund has not yet got too big to handle, and his record to date supports that view. However, it is clear that he anticipates that it could well become a problem soon. It was his idea to split the fund in two and propose widening the remit of one of the funds, while handing over the running of one of the funds to a new manager (and potential successor) before he finally gives up the day-to-day running of money for Fidelity at the end of 2007.

Evidence from the past suggests that Special Situations has indeed reached a point where investment returns should start to suffer from the size effect. However, given that Bolton himself is still going to be running part of the fund for at least another two years, I doubt very much whether many advisers will risk taking their clients elsewhere - just in case he continues to defy conventional wisdom and deliver exceptional performance into the future.

The very best investment managers, of which Bolton is clearly one, tend to adapt their style to match how much money they have, and those who go elsewhere because of fears about size, lost marbles etc, often live to regret the fact.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Life and Style
life
Arts and Entertainment
Cold case: Aaron McCusker and Christopher Eccleston in ‘Fortitude’
tvReview: Sky Atlantic's ambitious new series Fortitude has begun with a feature-length special
Voices
Three people wearing masks depicting Ed Miliband, David Cameron and Nick Clegg
voicesPolitics is in the gutter – but there is an alternative, says Nigel Farage
Voices
The veterans Mark Hayward, Hugh Thompson and Sean Staines (back) with Grayson Perry (front left) and Evgeny Lebedev
charity appealMaverick artist Grayson Perry backs our campaign
News
i100
News
people
Sport
Chelsea manager Jose Mourinho
footballThe more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Life and Style
Vote green: Benoit Berenger at The Duke of Cambridge in London's Islington
food + drinkBanishes thoughts of soggy school dinners and turn over a new leaf
News
Joel Grey (left) poses next to a poster featuring his character in the film
peopleActor Joel Grey comes out at 82
News
i100
News
business
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Compliance Assistant

    £13000 per annum: Recruitment Genius: This Pension Specialist was established ...

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Recruitment Genius: Technical Report Writer

    £25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

    MBDA UK Ltd: Indirect Procurement Category Manager

    Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

    Day In a Page

    Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

    Isis hostage crisis

    The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
    Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

    The runaway buccaneers and the ship full of gold

    Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Maverick artist Grayson Perry backs our campaign
    Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

    Assisted Dying Bill: 'I want control of my life'

    This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
    Move over, kale - cabbage is the new rising star

    Cabbage is king again

    Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
    11 best winter skin treats

    Give your moisturiser a helping hand: 11 best winter skin treats

    Get an extra boost of nourishment from one of these hard-working products
    Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

    Paul Scholes column

    The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
    Frank Warren column: No cigar, but pots of money: here come the Cubans

    Frank Warren's Ringside

    No cigar, but pots of money: here come the Cubans
    Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

    Isis stands strong as its numerous enemies fail to find a common plan to defeat it

    The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

    Virtual reality: Seeing is believing

    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
    Homeless Veterans appeal: MP says Coalition ‘not doing enough’

    Homeless Veterans appeal

    MP says Coalition ‘not doing enough’ to help
    Larry David, Steve Coogan and other comedians share stories of depression in new documentary

    Comedians share stories of depression

    The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
    Has The Archers lost the plot with it's spicy storylines?

    Has The Archers lost the plot?

    A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
    English Heritage adds 14 post-war office buildings to its protected lists

    14 office buildings added to protected lists

    Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Scientists unearthed the cranial fragments from Manot Cave in West Galilee