Ninety One UK Special Situations

The managers take a contrarian, value-focused approach, believing that investors often overreact to bad news and become too pessimistic about certain companies. This can create opportunities to buy good businesses at attractive valuations before the wider market recognises their true potential.

The search for new ideas typically begins with companies whose share prices have fallen significantly and are out of favour with investors. However, a falling share price alone is not enough to justify an investment. The team carries out detailed fundamental research to understand why a business has fallen out of favour, assessing its financial strength, balance sheet and long-term prospects. Their aim is to identify companies that have the potential to recover, rather than those facing permanent structural challenges.

Valuation is a key part of the process. The managers look for businesses where they believe the market is underestimating future earnings or the potential for an improvement in sentiment. They also consider how each new holding fits within the overall portfolio, ensuring it remains diversified across different companies and sectors.

The fund's contrarian value approach means performance can differ significantly from both the wider UK market and many of its peers. Returns are likely to be strongest when value stocks are in favour but may lag during periods when investors prefer higher-growth companies. Alessandro is also willing to take meaningful positions in his highest-conviction ideas, which can increase short-term volatility, although this is a deliberate feature of the investment approach and has the potential to enhance long-term returns.

ESG - Limited
The managers believe that there is a fine line between incorporating ESG risks and value investing, which they try to tread with this fund. Whilst ESG integration naturally aligns with the fund’s long-term approach, ESG risks can be seen as opportunities for the fund, especially with the contrarian approach. As such, the managers do look at material ESG issues, to allow them to build a picture of a company, but they will use this to identify opportunities as much as they do to exclude stocks. As a result, the portfolio will often contain firms considered ESG laggards.

ESG factors are analysed in the due diligence and analyst report phase of the process. This will help the managers understand the structural ESG risks of a firm, and the valuation the market is applying to it. They will look to factors such as the quality of management teams, carbon emissions and labour issues in the supply chain. If these are deemed as material risks to the business and not considered in the valuation then they will avoid the company, but conversely if there are ESG issues adversely affecting the valuation, and the firm has a comprehensive plan to address this, it could be an investment opportunity for the fund.