Fidelity Special Values

Investment trust

Launched in 1994, Fidelity Special Values aims to achieve capital growth by investing primarily in unloved UK companies and waiting for them to come back into favour. The trust can hold some overseas stocks too, although this is limited to no more than 20% of the value of the portfolio.

Our opinion

Alex is an experienced manager and has a good track record. We see no reason why he and Jonathan will not continue to achieve these results. While neither are income investors, Fidelity Special Values' dividend has increased every year since Alex took charge in 2012. This trust should appeal to investors looking for a value play in the UK market, with a medium- to long-term time horizon.

Trust manager

Alex Wright

I’m drawn to unfashionable stocks that are out-of-favour and trade on cheap valuations. I’m looking for potential positive change that others haven’t seen yet.

Alex WrightTrust manager

Investment board

The six-strong board of directors has been chaired by Andy Irvine since 2016. Andy has more than 30 years’ experience in commercial property. He is non-executive chairman of the Jones Lang La Salle Scotland and holds other non-executive positions in the investment trust industry.

The other independent board members are Nigel Foster, who has spent 30 years in financial services – Claire Boyle, Dean Buckley and Alison McGregor.

The final member of the board is Nicky McCabe – who is also a non-executive director of Artemis Fund Managers, Aberdeen Asian Income Fund Limited, Bristol University, Vitality Life Limited, and Discovery Holdings Europe Limited.

Investment process

Alex and Jonathan's investment style is best described as contrarian. This means they look for stocks that are out-of-favour, but that must meet two strict criteria. The first is the preservation of investors’ capital: the managers aim to do this by choosing companies with exceptionally cheap valuations or an asset, such as intellectual property or inventory, which has the potential to limit share price falls. Secondly, they look for companies where there is a catalyst for significant earnings growth. Although this approach often puts the managers on the opposite side of consensus, they are patient investors and are prepared to wait for stocks to deliver.

ESG

ESG - Limited  

The trust’s contrarian approach means Alex will look at all opportunities available to him and will not discount a stock purely because of its lack of ESG credentials. There is one exception though, in excluding companies that work with cluster munitions and mines. Alex’s primary focus is on finding unloved, value equities. However, this is not to say ESG factors are ignored. Governance factors are used to consider what poor management could do to a stock, and whether that would be a reason for the share price weakness. Alex will also look for any specific social and environmental concerns when considering the potential downside risks to a stock, or whether these risks are already incorporated in valuations. This may mean the portfolio could feature names that some investors would find unacceptable. Alex will also look at those improving their ESG characteristics and on the path to a better corporate profile, which will be beneficial in the longer-term. Therefore, ESG is a consideration, but will not result in exclusion from investment.

Risk

Contrarian investing has traditionally paid handsome returns, but investors must be patient. Returns can be exceptional one year and average the next. The managers tend to have a bias towards medium-sized companies, which can be higher risk than large blue-chip stocks. However, this risk is mitigated by the extensive in-house research team which supports the managers, as well as the diversified portfolio of around 80-120 stocks.

Gearing

The managers are able to use gearing as and when they find attractive opportunities. Gearing has been employed since 2013, with a range between 6% and 14%, although net gearing can go as high as 20%. It is worth noting that, unlike conventional methods of gearing, the managers use contracts for difference as a means of borrowing, which is more cost-effective for the trust.

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