16 April 2026 (pre-recorded 13 April 2026)
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[INTRODUCTION]
Staci West (SW): Welcome back to the Investing on the go podcast brought to you by FundCalibre. Geopolitical tensions have once again taken centre stage, reshaping the outlook for markets and challenging investors. Today’s guest shares how shifting sentiment is impacting UK equities.
Chris Salih (CS): I’m Chris Salih and today we’re joined by Alex Wright, manager of the Elite Rated Fidelity Special Values Trust. Alex, once again, thank you very much for joining us today.
Alex Wright (AW): No problem. Thanks so much for having me.
[INTERVIEW]
CS: No problem. So, as you already know, I – probably three or four weeks ago – had some questions for you nicely set up, and then the world has changed quite a lot since then. So there’s only one place to start and that is with this geopolitical uncertainty, what is happening in the world now and how it impacts everything everywhere. So I guess let’s start with you and your focus on the UK and just how you’ve sort of taken on board these changes in terms of possible impacts to the portfolio and how you’ve sort of managed to sort of take that on board.
AW: Yeah, so unfortunately Chris, you’re right, the sort of outlook for the stock market is materially worse than it was only sort of a month ago before Iran. And that’s irrespective of what happens from here.I think it’s very difficult to predict exactly how peace talks and deals will go from here. And we’re not trying to do that, but what we are looking at is what’s happened and what it means for sort of the world.
And I guess particularly here, it’s all about what happens to energy prices and just the fact that the Strait has been closed for a month that has materially affected sort of the oil price and will do over the sort of the median term in terms of sort of 12 to 24 months because you sort of run down stocks and also you’ve damaged key infrastructure.
So even if everything went back to how it was sort of a month ago right now you, you wouldn’t get back to sort of where we are were previously in terms of sort of stocks and production for at least 18 months if not 24 months. And that’s particularly the case in gas because unfortunately the damage done to the the gas infrastructure at Pearl Allergy, the Shell assets in Qatar. And so that does mean that energy bills are gonna go up for UK consumers. And they’re gonna stay up for probably at least 12 to 18 months, which is not good news for the amount of money people have gone in their pocket and also for inflation and therefore interest rates. So certainly for more cyclical stocks that is a clear negative, particularly for the smaller part of the market.
And so I’ve been surprised to be honest, especially with the rebounds that we’ve seen more recently that you haven’t seen a worse market outcome because these effects are obviously in place now and and obviously if we don’t get a a ceasefire ordeal they’ll just get worse. And so there’s clear risk I think to stock markets as a whole from current levels and we have reduced our net exposure because of that. So quite a lot. So we would’ve been sort of about 102% invested and we’re more like 94% invested. So sort of from a geared situation, borrowing money to invest in stocks, we now have sort of the effective sort of 6% cash in the fund.
CS: Okay. Just a couple of quick questions to follow up on that. Firstly, when you said you were surprised by certain things, is it that people have been buying the dip that you’ve been surprised at? Is that what shocked you?
AW: Yeah, I think because of the way because of the sort of the famous sort of taco trade, the sort of fact that sort of Trump has largely reversed pretty much everything he’s talked about to start with. And then clearly there are signs of him doing that here as well. But people have sort of been been sort of ignoring what’s going on and sort of thinking, oh, or go largely back to where it was, I think this is different because as I sort of said, those stocks are being run down and the assets have been damaged. So whatever happens from here, we are not going back to where we were before. And I think the market’s a bit complacent about that.
CS: Okay. Did you want to talk a bit more about some of those positions you have sort of been looking at more recently? I saw some stuff sort of focusing on the likes of Glencore for its coal exposure, a bit more on sort of reduced sort of copper focused positions. Just maybe talk a bit more in detail about a couple of those please. And how they sort of help you to manage as best you can. This uncertainty, obviously you can’t do it completely because you don’t have a crystal ball, but you can sort of try to do what you can, I guess is what I’m saying.
AW: Yeah, so I think we need to be honest with investors. We are an equity fund, so you’re gonna get equity market exposure here. So if equity markets go down, the funds gonna go down. And also because we’re mid admitted small-cap bias, we’ve got 60% of the fund there, that tends to be more cyclical. So actually in a falling market we would generally not just go down but go down more than the market. And indeed that has been the case so far this year. We have gone down more than a falling market although we’ve actually only really gone down probably in line with other funds, which actually has been a positive result compared to the shape of the portfolio. And I think part of that is actually what investors have done is they’ve sold off some of the positions that had previously done well even if they were somewhat sort of defensive positions.
And so the fact that we’ve exited sort of Rolls Royce, which clearly is a bit of a defense play, people might have thought that would help hold up in this environment. Actually it’s underperformed because it was so well owned. And so actually what we’ve looked to do at the margin is sell some of the stocks that have done well. So including actually some of the gold names as well as some of the copper names reinvested that a bit more into Glencore, which while it still has copper exposure, also has coal. Which obviously is a bit of an energy hedge in terms of sort of and also sort of geopolitical hedge because coal is produced in many more places than than gas in terms of the LNG market. So I think the value of Glencore on a medium term has sort of gone up. And I think is these more out of the way and sort of less well known places? And because the thing is is like generally defensive assets that you might go to like sort of utilities or healthcare or defense stocks or even oil stocks have all done well sort of previously. So there isn’t sort of the natural places to hide today. So I think it’s quite tricky in the market.
CS: With the defense stocks, I mean they were sort of very sort of the place to be in almost FOMO at one stage, but there is this narrative starting to come out of, you know, you can’t really hide in them because they’re so expensive. How are you sort of significantly underweight them now? What’s your view? Because you kind of don’t wanna miss them completely I guess.
AW: Well so we’ve been defensive, like we’ve owned every defense company quoted in the UK over the last 10 years and we were super excited about this space 10 years ago and everyone absolutely hated it. But our exposure is meaningfully is probably the lowest it’s ever been today because the sector’s done so well and also a number of the names we own got taken out.
So Meggitt Ultra got taken out ING did really well. We sold out cohort big profits sold out QinetiQ, big profits. And today the biggest stocks are sort of BAE is now sort of up to almost 3% of the UK index. Whereas when you look at our pure defense exposure, it’s sub 1% in Babcock, again a name that’s more than tripled since we bought it and we’ve meaningfully sold down. Serco is another sort of defense name that we’ve owned for a long time. Actually wasn’t seen as the defense stock 10 years ago because in fact defense was quite small but now it’s almost 60% of turnover. But again, that’s been something at the margin we’ve been reducing rather than buying more of because it has done well. So again, I think that’s it.
Serco has held up pretty well in this downturn, but actually Babcock has has come off because it was so well owned. So it’s the natural hiding places have proven to be sort of good differentiators and obviously gold has sold off quite meaningfully since the start of the conflict. So again showing just how difficult it is to sort of insulate yourself here because some of those traditional safe havens have done really well over the last year.
CS: One area that is of interest, which I don’t know if you’d call it a safe haven, but certainly done well recently, is those oil majors. As a result of what’s been happening in the Strait with it being closed for a prolonged period, is that an area that you are also wary of at the moment given the prices or?
AQ: Yeah, so again, oil is something we had a lot of in the fund in 2020 when the oil price went negative. But obviously things started getting better through sort of 2021 and obviously through 2022 that those stocks did incredibly well with Russia, Ukraine and we started reducing then. And we’ve had a smaller weight since then because I think having moved from a sort of prior status with the sort of ESG bubble in sort of sort of 2018, 2019 and these stocks have become much more acceptable to invest in. But actually when you look at what you’ve got in the UK in terms of Shell and BP, both of those companies particularly BP, have had strategic issues in terms of flip-flopping on new energies, cutting their dividends, reinvesting at low returns a and don’t really, and have sort of stopped really spending on exploration.
So the issue is that those are sort of declining assets at reasonably high valuations, certainly reflecting a long-term oil price reasonably above our sort of view of $65 long-term oil. So there will be obviously some short term gains while oil is above those levels, but you are sort of paying for oil being permanently above. So while you might see oil here for 12 or 24 months, we don’t think you will on a three to five year view.
CS: Yeah, I was kind of thinking like, I mean I’ve just spoken to a multi-asset manager who’s incredibly miserable and he was sort of saying, what if the world’s changed forever? What if Iran controls this with China? What’s coming out of that Strait, do you have to fact, can you think about things like that long term or do you just have to look at the fundamentals of the stock now going into sort of media?
AW: Yeah, so you think about the range of outcomes. So that obviously is a potential bad outcome that would just be bad for everybody. So if oil stays at over a $100 and Iran has permanent, that would generate a global recession. So in that case you don’t really wanna be in stocks. [CS: Yeah. Okay.] Now when you look at, we’ve got 6% of the fund in oil, it’s in total and a couple of smaller companies, they would do well, but the other 90% of the portfolio would do partly. [CS: Yeah. Yeah.] So that is a scenario that you have to consider, but it’s a bad scenario for everybody.
CS: Okay. Bigger things to worry about.
AW: Yeah. But also I think you need to think about, that’s such a bad scenario just how much sort of capital the US would spend to stop that occurring is probably also quite high.
CS: Okay. Yeah. Obviously mid and small-caps are a big part of your portfolio and your ability to find companies in those sphere, you know, historically has been really good, excellent in fact, but in terms of what’s going on at the moment, they always seem to get roped in and suffer some way or another. Are you looking at them thinking I need to maybe pull away from them? Or are you starting to see things that are going falling into your price metrics wherever going, oh my god, this is at a ridiculous price now in terms of attraction. How are you trying to weigh up that exposure to those parts of the market?
AW: Yeah, so the fund’s always overweight, mid and small-cap. So about 60% there compared to only 20% of the market. So that’s a very substantial overweight and has clearly been a drag to near term performance. The key reason why we’ve been underperforming year to date. Although something that despite the underperformance of small-caps, actually last year we managed to counteract by really large-cap stock picking. There are good sort of non-cyclical sort of small and mid-caps indeed sort of along with total about 4.5% of the fund. DCC, which is a sort of mid-cap, is a really good defensive company. It’s a sort of fuel distribution business. So it’s pretty much sort of a cyclical but on average the smaller companies are more cyclical and therefore this sort of turn of events is more negative in terms of sort of a softer economic growth, higher interest rates than were expected at higher inflation. Now the valuations I think give you a lot of comfort on the downside because you are right, there’s a meaningful difference between large-cap valuations and mid/small-cap valuations.
CS: And we’ve talked so many times about how small, you know, large-cap isn’t cheap really anymore, the value is really significantly further down the market, you know, well mid and small-cap really the opportunities are.
AW: Yeah, well I’d say that the valuation gap for large-caps compared to the past narrowed a lot last year because the UK market was up 25%. So at the margin, obviously the market’s come off a little bit, so you are, you’re paying sort of 12.5 times compared to 14. So I wouldn’t say large-caps are expensive. They’re not even, they were back at their long term averages. [CS: Yes.] As sort of three months ago. They’ve come off that now, but when you look at mid and small-caps, they’re on 10 times. So that a decent 25% valuation difference. And so that is where much more of the value is. But we have to watch the earnings estimates a lot more there because there’s more cyclicality in there. There will be inevitable downgrades to earnings from lower economic growth, lower consumer spending than expected.
CS: Okay. I didn’t wanna spend the whole time talking about the negativity of the geopolitics. I wanted to talk about some of the positives that have been going on for you. And there are a few, I wanted to start with a quote that I saw in an article from you though, where you talked about, you know, the sharp market dislocations caused by the rise of artificial intelligence and it was creating sort of one of the most compelling backdrops for value investors in recent years. I know what’s happened recently might change that, but I still think it’s an interesting thing to talk about. You know, given that value had been on such a great run in recent years, not just in the UK across the globe. Maybe just give us a bit of insight into that please because I think it was really interesting.
AW: Well I think what AI is increasingly being sort of viewed as doing is sort of making sort of incumbency and monopolies much harder to persist. So if you look at some of the highly rated companies in the UK, like a sort of a Relx a, Rightmove and Auto Trader and LSE that they’re there because they’ve got sort of ingrained sort of network effects and monopoly type characteristics that’s allowed them to have incredible pricing power and incredible earnings growth over a sort of 10 year plus periods. And obviously AI is potentially disruptive in terms of its ability to potentially sort of create new businesses that might be able to threaten some of that. Now some of these businesses are definitely not gonna have their monopolies or quasi monopolies sort of threatened, but just the sort of, the very risk of that means the multiple you’d be willing to pay is much lower. And that’s kind of across the board.
So that’s where sort of it’s been a really good environment for sort of value be because sort of in that environment you just need to pay a lower multiple for all of these types of stocks. Whereas sort of companies that are already on low valuations, you don’t see that sort of valuation compression. And so that’s why it’s been particularly in the large-cap end as well because of the sectors that’ve been working a really good market for value. And we’ve had yeah, clearly a big benefit that if you look at the biggest contributor performance last year is not owning Relx compared to the market. So it’s very rare that just not owning a stock on a relative basis gives you the best performance.
CS: I was going to ask this a bit later, but let’s ask that now because I wanted to finish a bit on performance. Couple of questions. Firstly, obviously you had a great 2025 and there’s an argument that, given the exposure you have to mid and small-caps, there was almost a bit of a headwind compared to some of your peers doing that. Maybe just explain how you managed to do that, given that headwind from being invested further down the market cap.
AW: Yeah, so there was a huge headwind to my performance from being overweight mid and small-caps because large-caps did about 25%, whereas I think mid-caps were 10% plus below that. So hat that’s almost a 5% performance headwind. But it was more the stock picking and the large-cap stocks, as I said, not owning the big expensive stocks. So no Relx, no Unilever, no LSE, no Diageo, no 3i, no Compass. And actually, yeah, that’s it on the 12 months, the end of March six of that top 10 is just not owning those names. They’ve done so badly because those were stocks that started at just very high multiples. And many of them are still at quite high multiples today, even though they’ve done so badly. So that’s the thing is while the UK market as a whole is cheap, there’s still expensive stocks within the market and if you sort of own those you’ve done pretty badly in the last 12 months.
CS: Yeah, I think people often get confused and think, you know, just owning a tracker or something in the UK because everything’s cheap makes sense when that’s completely wrong or certainly was at the end of last year.
AW: No, definitely because these obviously were big stocks in index, so your tracker would’ve been full of these type of names.
CS: Yeah. Okay. I guess just lastly with the uncertainty, I guess maybe just finish with a bit of a message for investors and how you think they should be looking into this. I mean there will be opportunities coming through this at some stage, won’t there?
AW: Oh yes, definitely. So I think obviously the important thing from private investors is to sort of timing markets is really hard. So over time it’s best to be invested in the market rather than sort of be sitting in cash. But also this is this is a global phenomenon. Again, I think the UK market actually, because it has a decent amount of non-cyclical sectors, be they the size of the healthcare, the utilities, tobacco sector is actually a reasonably good place to be in a market downturn. And indeed the UK market as a whole has actually outperformed global indices this year as well. So in an up market last year the UK was outperforming mainly because of on valuation, whereas you look at this year it is outperformed because of that less cyclicality and then obviously the exposure of to oil in the UK market, which is also quite big at about 10%. So I think on a relative place to be the UK market’s not in a bad place. But obviously there’s some key risks I think to stock markets as a whole at the current time.
CS: I’m glad we sort of ended that on a relatively positive note given the start. But Alex, thank you very much for joining us today.
AW: Brilliant. Thanks very much.
SW: While not an income fund, the trust has increased its dividend every year since Alex took charge in 2012 and we believe it should appeal to investors looking for a value play in the UK market. To learn more about the Fidelity Special Values Trust please visit fundcalibre.com and don’t forget to subscribe to the Investing on the go podcast, available wherever you get your podcasts.
