Fund Manager Interview - Fidelity Special Situations
In this article Sanjeev Shah, manager of the Fidelity Special Situations fund, explains his views on investing in UK equities and how he is positioning his fund at this time.
The Fidelity Special Situations fund, which invests mainly in UK equities to achieve its objective of long term capital growth, has delivered some impressive figures recently. Over the years many of our investors have selected the fund to gain exposure to the UK stock market through an actively managed portfolio. They have been prepared to accept the higher investment risk associated with this type of fund and, whilst not a guide to future performance, it has pretty consistently outperformed the benchmark of the FTSE all-share over recent years. The fund is available through Chartwell Direct at 0% initial charge and is one of our Top 100 funds. You can invest by downloading an application form by clicking here or logging into your Cofunds account online. Alternatively, if you have any queries please do not hesitate to contact our Investment Helpdesk on 0117 9170777.
Why should investors consider investing in the UK now?
Investing in the UK stock market is not just investing in the UK economy. Over two-thirds of the revenues of major UK companies now come from overseas*, and, as many economies are showing signs of coming out of recession, they should benefit from a global upturn. Also, whilst this is a UK fund, I have the ability to invest up to 20% outside of the UK which enables me to gain specific exposure to attractive overseas companies.
In the current environment, I'm finding plenty of valuation anomalies in the UK market, providing me with a number of attractive stock picking opportunities.
What makes you include a stock within your fund?
As a value investor I look for significantly undervalued stocks; those with the potential to appreciate in value by at least 20%. I take a contrarian approach to stock-picking and favour investing against the market consensus, as I feel that is where the most value can be obtained. I look for stocks where there is a turnaround/recovery situation, unrecognised growth, a hidden jewel, and corporate activity potential.
I'll shortlist stocks where the fundamental story, valuation and technicals come in line before drilling down deeper, taking into consideration, for example, money flow analysis and director dealings.
Kingfisher, a leader in DIY in the UK and France, is a stock I purchased. It matched a number of my criteria including a strengthened balance sheet post selling their Italian business; its competitors are weak and its valuation was attractive versus history.
Please explain what has contributed to the fund’s outperfomance of its benchmark over the last 12 months
Coupled with Fidelity's impressive research capabilities, my contrarian investment style has been key to the fund outperforming its benchmark by over 15% over the last 12 months**. I am not afraid to go against the crowd when looking for investment ideas to include within the portfolio, which essentially means that I look for ideas which are cheaply priced and unloved by other investors.
An example of this would be the positioning within financials. I began to move away from defensive stocks and back into financials in the latter part of 2008, which has been a key contributor to performance. I maintain a broad range of holdings within this sector in order to diversify the risk.
Other sectors which I currently favour include; Real Estate, Media and Travel & Leisure. Compared to the benchmark I remain underweight Oil & Gas, Basic Materials and Consumer Goods, which do not contain as many attractively valued stocks.
Has the positioning of the fund changed much since the market low in March?
I had already moved away from defensives and into some of the more cyclical sectors such as financials and consumer discretionary in 2008. Some of these stocks have worked well, and I have taken profits as they approach my target price. I am currently finding more opportunities in mid and, to a lesser extent, smaller sized companies, rather than larger names.
What is your view on the prospects for the fund considering your outlook on the economy?
I remain in the more optimistic camp compared to other investors. Whilst there may be set backs, I believe these will be good buying opportunities. As a result, I believe the fund is well positioned to benefit from this.
If you have any questions with respect to the Fidelity Special Situations fund please do not hesitate to contact the Investment Helpdesk on 0117 9170777 or by email at direct@chartwell.co.uk.
Important information - The value of the fund can go down as well as up so you may get back less than you invested. As this fund can invest 20% of its value in overseas markets, changes in currency exchange rates may affect the value of the fund.
Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity.
* Revenue figures for FTSE 100 companies based upon research collated in 2008 by Citi Investment Research.
** Source: Fidelity as at 31.08.09. Basis: bid-bid with net income reinvested. Benchmark FTSE All Share Index. These figures relate to the fund’s past performance, which is not a reliable indicator of future results.