Finding a replacement for Anthony Bolton, the UK's most successful investor, at the giant Fidelity Special Situations fund was fund management's most hotly anticipated appointment in 2007. And you would have thought that it was a dream job for any ambitious young fund manager.
However, when Sanjeev Shah was offered the chance to step into the legendary contrarian investor's shoes, his first instinct was to decline. "It was always going to be a hard decision," Mr Shah said, speaking to IC sister title Investment Adviser. "He has the track record all of us aspire to, [but] initially, I declined the offer." He thought it might be disruptive to his career as he wanted to build up a longer-term track record on the fund he was then managing, Fidelity European Aggressive.
Whatever the reason for his initial indecision, Mr Shah's tenure has proved beneficial for the fund's investors. Mr Shah has been at Fidelity for 13 years and worked with Mr Bolton as an analyst before taking the reins at Fidelity Special Situations. After a six-month joint management period, he fully replaced Mr Bolton on the UK portfolio of the fund at the start of 2008. At the end of the year, the fund was 5 per cent up on the benchmark, having returned -24.86 per cent over the calendar year compared with the benchmark (FTSE All-Share index) return of -29.93 per cent.
The second quarter of 2008 proved difficult for the fund as its underweight position in resources held back performance at a time when oil and other commodity prices were rallying strongly. "I believed that commodity prices were significantly higher than marginal production costs and would eventually fall back," he says. "My suspicions were correct and this paid off in the second half as the commodity rally petered out when investors began to realise that Asia was not going to be able to keep demand at previous levels."
| DATA ON FIDELITY SPECIAL SITUATIONS... |
|---|
| See a full factsheet on this fund in our fund data section... |
The fund's large exposure to media stocks also contributed positively to returns. Core holdings Pearson (owner of Investors Chronicle) and Reed Elsevier, in particular, performed well. Adding to positions across the financials sector when it was looking at its weakest in the autumn also proved to be a rewarding strategy.
Fidelity Special Situations is an adventurous UK equity portfolio, which is managed to achieve capital growth over the long term through investment in a range of small, mid and large UK and international companies. The fund has a bias towards 'special situation' investments, which are typically attractively priced companies with the potential to rise in value; this could be due to a new business strategy or the potential for merger or takeover activity.
| SANJEEV SHAH CV |
|---|
Sanjeev Shah has run the Fidelity Special Situations Fund and Fidelity Special Values plc since January 2008, having managed the Fidelity UK Aggressive Fund (October 2002 to August 2005) and the Fidelity European Aggressive Fund (August 2005 to May 2007). Prior to these roles, he spent six years as pan-european equity research analyst with Fidelity. He also worked as a commercial and business analyst at Unilever. Born in 1970, Mr Shah has an MBA from INSEAD, an MA degree in economics from Cambridge University and the ACMA from the Chartered Institute of Management Accountants. |
Like Mr Bolton, Mr Shah takes a contrarian approach, often preferring to go against the herd to find value. "You'll generally find me looking at areas that are not looked at by other investors - where short selling is going on," he says.
"This has fared me well over the long term. The majority is wrong most of the time. However, I'm not being contrarian for the sake of it. There will always be times when it doesn't work.
"In 2008 one of the bets that didn't work was increasing exposure to banks too early. With hindsight, that was a mistake - it was a value trap rather than an opportunity."
The fund's remit means Mr Shah looks across the board at small, medium and large-cap UK stocks. In early 2008, he says there were better opportunities in some larger caps. Today, he says there are far more opportunities in mid and small caps.
He is finding quite a few ideas in the support services sector - he likes Experian and Xchanging. In the retail sector, where he added to quite aggressively at the end of 2008, he likes Kingfisher.
He really likes media large caps such as Pearson, BSkyB and Reed Elsevier ("Media overall is very cheap relative to history"). He is also overweight in the leisure sector, where he likes gaming stocks in particular.
He is underweight in integrated big oil stocks, utilities ("they're a perceived safe haven but I'm not so sure - there is greater balance sheet risk than people think") and consumer staples ("fairly well owned by investors").
"I continue to favour structural growth stories that look to have good value compared to history," he says. "I am also overweight in technology stocks. I continue to look for potential bid targets and believe that merger and acquisition activity will pick up this year. The rising spread in valuations between sectors - and within sectors - is creating a good bottom-up stock-picking environment."
He sees confidence slowly creeping back into markets from several angles. Recently, more directors have been buying shares in their own companies than at any time in the past year - that they have been doing so in a falling market is doubly significant, thinks Mr Shah. Analysts are also becoming more realistic and lowering their forecasts. Plus, Mr Shah thinks valuations on many stocks and sectors are looking attractive compared with those in the 1993 bear market, especially on a price-to-book basis.
"We may not have passed the trough for stocks yet, and the economy is likely to be in recession for some time," he says. "But analysis of fundamentals leads me to be more optimistic about stock market opportunities than I have been in a while."
