4 investment trusts for your ISA this year
Investment trusts have been around for more than 150 years — and their unique qualities make them...
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
Established in 1969, Fidelity International has offices in more than 20 countries. Its product range spans mutual funds, defined contribution pensions, segregated portfolios and multi-manager funds. Fidelity compensates its managers based on their long-term performance, which illustrates the company’s intention to align interests with clients.
The trust is run by Alex Wright and Jonathan Winton. Alex was appointed manager in September 2012 and has around 20 years’ investment experience across UK and European equity markets. He joined Fidelity in 2001 as a research analyst. Alex graduated from the University of Warwick with a first-class economics degree.
Jonathan was appointed co-manager of the trust in February 2020. He joined Fidelity as an analyst in 2005 and has worked alongside Alex in the Fidelity UK equities team since 2013. Jonathan graduated from University of Nottingham with a degree in Politics.
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 five-strong board is chaired by Dean Buckley. Dean was previously chief executive officer at Scottish Widows Investment Partnership. He has also held several positions at HSBC Bank plc, including chief executive Officer for HSBC Asset Management UK and Middle East and chief investment officer for HSBC Asset Management, European equities. He is also a non-executive director of the JPMorgan Asian Investment Trust.
The remaining board members are Claire Boyle, Nigel Foster, Alison McGregor and Ominder Dhillon.
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 and Jonathan will look at all opportunities available to them 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 and Jonathan'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. The managers 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 and Jonathan 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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