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Investment Trust

Fidelity Special Values

Elite Rated by FundCalibre

Launched in 1994, the trust aims to achieve capital growth by investing primarily in unloved UK companies and waiting for them to come back into favour. It does hold some overseas stocks too, although this is limited to no more than 20% of the value of the portfolio.

Investment Manager

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Fidelity International is the investment company employed to manage this trust. Established in 1969, Fidelity is a financial services corporation with offices in more than 20 countries. Its product range spans mutual funds, defined contribution pensions, segregated portfolios and multi-manager offerings. It compensates managers on long-term performance, illustrating its intention to align interests with clients.

The trust is run by Alex Wright, who was appointed manager in September 2012 and has more than 15 years of investment experience in UK and European equity markets. He joined Fidelity in 2001 as a research analyst. Alex has a Bachelor of Science in Economics from Warwick University.

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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 Wright - Trust Manager

Investment Trust Board

The board comprises five members, four of whom are independent. The chairperson is Andy Irvine. Andy has more than 30 years’ experience in commercial property and is a non-executive chairperson of Jones Lang La Salle Scotland, as well as holding 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 Sharon Brown and Dean Buckley, both whom are non-executives and have extensive investment trust board membership experience. The only Fidelity executive on the board is Nicky McCabe, who is Fidelity’s head of investment trusts. The company’s year end is 31 August.

The Investment Process

Alex’s investment style is best described as contrarian. This means he looks for stocks that are out-of-favour, but that must meet two strict criteria. The first is preservation of investors’ capital, which Alex aims to do by choosing companies that have exceptionally cheap valuations or an asset, such as intellectual property or inventory, that should limit share price falls. Secondly, he looks for companies where he believes there is a catalyst for significant earnings growth. His approach often puts him on the opposite side of consensus, but he is a patient investor and is prepared to wait for his stocks to deliver.

Risk

Contrarian investing has traditionally paid handsome returns, but investors must be patient as stocks need to be given time to bear fruit. Returns can be exceptional one year and average the next. The manager tends 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 that support Alex, as well as the diversified portfolio of around 100 stocks.

Gearing

The board allows the manager to use gearing as and when he finds attractive opportunities. Alex has been using gearing since 2013 and the range has been between 6% and 14%. It is noteworthy that, unlike in more ‘conventional’ methods of gearing, Alex uses ‘contracts for difference’ as a way of borrowing money, which is more cost effective for the trust.

Share price discount/premium

The trust share price tends to trade at a discount to net asset value (NAV). In the last 10 years (to 31 August 2016), the discount range has been between -2% and -15.4%. In the past, the trust has undergone a stock split to make it easier to trade, which impacted the price of its shares. The ratio was five for one, meaning that for every stock held prior to split, shareholders afterwards held five.

Our Opinion

Alex is an experienced manager and has a good track record and we see no reason why he will not continue to achieve these results. Although not an income investor, he has managed to increase the trust’s dividends every year since taking charge in 2012. This trust should appeal to investors looking for a value play in UK, with a medium- to long-term time horizon.

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