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Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Fidelity Special Values. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
FSV’s contrarian approach should help capture the cheap valuations on offer from the UK market…
Overview

Manager Alex Wright takes a contrarian, bottom-up approach when building a portfolio for Fidelity Special Values (FSV). He looks for companies that are currently out of favour and which have been overlooked by other investors, but Alex, along with co-manager Jonathan Winton and aided by the support of the Fidelity analyst team, believes he can identify those with the potential to change their fortunes and perform a turnaround. The flexibility of the mandate means the trust tends to have a small and mid-cap (SMID) bias when compared to its benchmark (see Portfolio).

The focus on stock selection from the bottom up means that this should be the primary driver of performance over the long term. However, the manager’s contrarian approach means that the trust typically has a value bias, which has had an impact on relative Performance, as has the bias towards SMIDs. FSV has however been one of the top performers compared to its peer group over many time periods though, boosted by strong near-term returns.

Despite this good recent performance, Alex is relatively cautious about the near-term given the macroeconomic uncertainties, and questions the resilience of earnings in certain industries should there be a recession. This is reflected in the trust’s below-average Gearing. Nonetheless, he believes that UK-based companies are particularly cheap as a result of negative sentiment, something that has also been reflected in the trust’s wide Discount versus its own history.

Analyst's View

We believe FSV’s contrarian approach is one of its standout features (see Portfolio), as it provides investors with a portfolio with very different exposure to what is available within a tracker, or elsewhere in the AIC UK All Companies sector. Not only this, but the manager’s flexibility allows him to identify opportunities within smaller companies that passive investors would miss out on. This approach has helped the trust become one of the top performers in the sector across a number of time periods. The market rotation to value over the past 18 months has been a recent tailwind, but we believe that the manager’s stock selection prowess over multiple periods is another key asset of the trust (see Performance).

Despite this, the trust is currently trading at a Discount that is towards the wider end of the range in the manager’s tenure, and over one standard deviation wider that the trust’s five-year history. We believe this reflects wider concern over UK companies, rather than the performance and potential of the trust, and could be seen as an opportunity for long-term investors. We understand that the small and mid-cap bias of the trust has been a headwind in the past year, but that current valuations are more than reflecting the negative headlines. Alex has positioned the trust to companies which can show resilience in earnings despite the weakness, and our proprietary KTI Spider Chart (see Performance) has demonstrated that FSV has historically had strong downside protection. As a result, we believe not only that FSV could offer some protection to investors in a challenging market, but also that the trust is well-placed to capture the low valuations on offer in the event of a UK recovery.

Bull

  • Contrarian approach means a differentiated portfolio to peers and benchmark
  • Performance driven largely by stock selection
  • Trust is trading at a wide discount relative to its own history

Bear

  • Value bias may become a headwind in a low interest rate environment
  • Small and mid-cap bias could increase economic sensitivity of the portfolio
  • Non-exclusionary approach may not suit investors for whom ESG is a prominent consideration
Continue to Portfolio
2024 Kepler Income & Growth Rated Fund

This trust has been awarded a rating by Kepler Trust Intelligence for income & growth... Find out more

Fund History

17 Apr 2024 Pretty, pretty, pretty good
Do investment trusts really protect capital and income against inflation? Let's take a look…
17 Jan 2024 Top of the Pops
We reveal the winners of our investment trust ratings for 2024…
31 Aug 2023 Fund Analysis
FSV’s contrarian approach should help capture the cheap valuations on offer from the UK market…
02 Mar 2022 Investing in the UK with investment trusts
How closed-ended funds can help investors in UK companies...
05 Jan 2022 Kepler’s top-rated trusts for 2022
We unveil the winners of our ratings for 2022 in the Growth, Income & Growth and Alternative Income categories…
05 Feb 2020 The best form of defence
We look at the continued rise of passive funds, and find out how investment trust managers are countering it...
27 Mar 2019 NEVeR MiND tHE B*LL*CKS
We cut through the histrionics and discover, with surprising results, what life has really been like for British investors since David Cameron put it to 'the people'....
15 Mar 2019 Fund Analysis
Fidelity Special Values (FSV) aims to identify under-valued companies from across the UK market cap spectrum ...
02 Aug 2017 Carpe Discount…
We analyse just how much discount movements have on shareholder returns in the AIC UK All Companies sector...
02 Aug 2017 Fund Analysis
A contrarian investment trust with a highly experienced manager investing in UK and international equities with a mid cap bias...
12 Jun 2017 MAYDAY!
As the Conservative party founders, we examine the impact of last week’s disastrous election on trusts...
07 Jun 2017 Omnishambles...
Given the huge levels of political-induced uncertainty, we analyse recent drivers and themes within the UK equity market ahead of the upcoming election
26 Apr 2017 The greatest...
We use technical analysis to identify some of the best stock picking fund managers over the long-term...
22 Mar 2017 The new kids on the block…
We highlight the three newest managers to grace the UK equity sectors and how they have put their own individual stamps on the portfolios they've inherited...
26 Jan 2017 Value: The dawn of a new era?
Amid much speculation that the 'value' style of investing is making comeback, our research shows that the style has previously performed better during bond market sell-offs...
18 Oct 2016 Is the UK cheap?
As being bullish on the UK is looking increasingly contrarian, we take a look a look at the discounts on offer...
04 May 2016 The ultimate arena for stockpicking
We examine funds which invest in smaller companies, which have invested their large cap peers over many decades...
View all

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