Anthony Bolton, veteran investor and manager of Fidelity’s £635m China Special Situations investment trust, has tipped the long-running bull market in gold to continue amid ongoing economic woes across the globe.

Speaking exclusively to Investment Week, Bolton said the precious metal still has support at current levels despite climbing in price sharply since the start of the year by 10%, to a recent high of $1,550.

Bolton on...

Gold

“I am conscious of the fact it has done well, but the elements that led to that remain in place,” he said.

Bolton has backed the precious metal throughout 2011, holding stocks including Zhaojin Mining Industry to gain exposure to the asset class.

“I view gold differently from other commodities as it has characteristics more like a currency,” he said. In a world where so many currencies have problems, some exposure to gold makes sense to me.”

Commodities

Bolton’s stance on gold is at odds with the remainder of the commodities market, which he has avoided. He said a number of commodities appear to be near peak prices after sharp rises in value which now threaten to stifle demand.

“Valuations are high, they are very popular and over-owned and therefore risky,” he said. “I do not think they reflect the slowing growth in China and low growth in the rest of the world. It is interesting that Glencore, one of the most successful commodity trading houses, has chosen to list now when, maybe, a number of commodity prices are near a peak.”

Oil

Bolton said a lack of exposure to energy stocks – where he has just 0.5% of his portfolio compared to the MSCI China benchmark of 18.4% – has weighed on the portfolio’s performance following a sharp rise in the price of oil. In the last six months the price of Brent crude climbed sharply from $94 per barrel to peak at $127 in April. He said his underweight position on oil is “under review”. “Oil is more political and I may change that at some stage,” he said.

Portfolio construction

Bolton’s trust is skewed heavily in favour of domestic consumption and  retailers, and half the fund is in service businesses across the financial, IT, telecoms and healthcare sectors.

Bolton said he is avoiding Chinese property companies and banks – a strategy he has used throughout this year.

“Within financials, the main exposure is to Hong Kong-based banks and property companies,” he said. “The fund’s only exposure to the mainland residential property market is through two estate agent companies, worth about 1% of the fund.”

He said bad loans on banks’ balance sheets on the mainland, coupled with tightening measures introduced by the government to cool the overheating economy, remain headwinds in the short term.

Performance

Bolton has outperformed the MSCI China index in the first year of the China Special Situations trust’s life, with the NAV rising 5.24% compared to the benchmark gain of 3.3%. However, he has seen performance drop sharply in the first six months of 2011, with the share price down 22% and the NAV down 13.8% to 15 June, amid market falls of about 5%.

Bolton said he was “more than slightly disappointed” with returns, noting the weak market conditions had affected the trust’s strategy of investing in small- and mid-cap stocks.

“All the funds I run have been overweight mid and small companies. In China, I have a bias to small private companies which generally have a higher beta than the market, and that has been one of the things that has hurt performance as markets have remained difficult since the year end.”