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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 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, and Claire Boyle and Dean Buckley, both of whom are non-executives. Meanwhile, Fidelity’s previous head of investment trusts Nicky McCabe is the final board director. The trust’s year-end is 31 August.
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.
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. Net gearing was 2.5% at 31 August 2019.
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