Page 6 - DIY Investor Magazine - Issue 28

CONTRARIAN, VALUE, UK: A RECIPE FOR SUCCESS? Fidelity Special Values PLC wouldn’t be much fun at parties. Where other trusts are keen to get in with today’s high-flyers, the biggest growth names that attract all the attention, this trust prefers to frequent areas of the market that are, in manager Alex Wright’s words, “unfashionable”. By Alex Denny, Head of Investment Trusts, Fidelity International Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. value, has created a challenging environment for contrarian value investors like Alex Wright, who manages Fidelity Special Values PLC. In his eyes, there are two reasons for the UK’s under-performance in recent years. The first is Brexit. Markets hate nothing more than uncertainty, and our protracted divorce from the EU left the UK’s prospects dubious for the best part of five years. The UK also fared particularly poorly during the pandemic. The sort of sectors that make up the bulk of our market - industrials, financials, retail, services, and so on - were the ones that suffered worst amid lockdowns. They’re typical “cyclical” sectors, whose performance tends to resemble the overall health of the economy. That means they do well when times are good, and struggle when they’re not. A preponderance of cyclical companies led to an especially sharp decline in GDP - the UK economy contracted by 9.9% last year, its biggest contraction in over 300 years - and a lagging stock market. Fortunately, both Brexit and the pandemic could soon be behind us. In fact, as Wright points out, conditions have already started changing in favour of his trust. FIDELITY SPECIAL VALUES PLC This investment trust seeks out good-quality but unpopular companies, whose long-term growth potential has been overlooked by the market. Portfolio manager Alex Wright’s contrarian approach to the trust thrives on volatile and uncertain markets, when there’s more chance of stocks being misjudged and undervalued. Investing mainly in the UK, and supported by Fidelity’s extensive research team, Alex looks to invest in out-of- favour companies, having spotted a potential trigger for positive change that he believes has been missed by others. Click here to find out more Wright is a devotee of the ‘value’ approach to investing. That means he looks for companies which he believes are trading at a discount to their true worth. It’s the opposite approach to ‘growth’ stock pickers, who are willing to pay high prices for companies they feel can continue to deliver rising earnings, regardless of the state of the wider economy. This is also a UK-focused trust, making it doubly unfashionable. Wright’s choice of both style and geography have lagged others over recent years. But he feels things are changing. WHY THE UK, AND WHY NOW? The UK has been out of favour among investors for some time now. That, combined with growth stocks’ outperformance over OVER THE PAST SIX MONTHS, A PERIOD WHICH HAS DELIVERED BOTH A BREXIT DEAL AND REMARKABLE VACCINE PROGRESS, UK COMPANIES HAVE OUTPERFORMED THE US, WITH VALUE STOCKS FARING BETTER THAN GROWTH. DIY Investor Magazine | Apr 2021 6