Generate growth across the market cap with Fidelity Special Situations

Since 2014 the fund has been managed by Alex Wright, during which time it has delivered good returns and met its objective of providing long-term capital growth. Over one and three years, the fund returned 15.8 per cent and 40.5 per cent, respectively, beating its sector average and the FTSE All-Share index, which returned 10.6 per cent and 26.0 per cent over the same period. And over one, three and five years the fund is among the top quartile of performance within the Investment Association UK All Companies sector. Despite its growth mandate the fund is also yielding 1.54 per cent.

Mr Wright, who has 14 years’ experience in UK and European equity markets, also runs Fidelity Special Values (FSV) and co-manages Fidelity UK Smaller Companies Fund (GB00B7VNMB18). He has demonstrated sustained stockpicking skill and an ability to beat the market over the long term. According to FE Trustnet, Mr Wright delivered a cumulative total return of 268.9 per cent over seven years, compared with 144.8 per cent for a composite of his peer group.

Fidelity Special Situations takes a contrarian approach, with the manager favouring unloved companies that typically have already gone through a sustained period of underperformance, but where the risk of further downside is limited. He seeks to limit risk by finding companies with, for example, strong balance sheets, good cash flows, high barriers to entry and low valuations.

Mr Wright also likes sectors where change can happen quickly and where a diverse range of business models provide the potential for mispriced stocks. Financials make up the largest sector in the portfolio, representing 35.9 per cent, followed by industrials at 27.5 per cent. By contrast, the fund has less than 5 per cent across utilities, consumer goods and basic materials.

UK stocks make up 80 per cent of the portfolio, but the fund can also invest up to 20 per cent in other geographies. Currently these include the US, Ireland, Germany and Canada.

FTSE 250 companies make up the largest proportion of the fund at 36 per cent, followed by non-FTSE companies at 29 per cent and FTSE 100 companies at 23 per cent. FTSE Small Cap companies make up 9.3 per cent of the fund.

Liontrust Asset Management recently added Fidelity Special Situations Fund to all its multi-asset portfolios. John Husselbee, head of multi-asset at Liontrust, says: "The fund has followed [its] contrarian stockpicking approach since its launch in 1979, and continued under the tenure of three fund managers – Anthony Bolton, Sanjeev Shah and now Alex Wright. We previously held this fund under Anthony Bolton’s tenure, but have since been impressed with Alex, who has maintained the original approach and objective of the fund."

The fund can use derivatives to reduce risk and generate additional capital, but this can increase its leverage (debt), which can increase losses as well as gains. And the fund’s significant allocation to smaller companies means it could experience more volatility than one that focuses only on larger, more stable companies. But while short-term volatility could crop up as a result, Mr Wright has demonstrated that he can generate strong long-term returns using this investment approach.

So if you can invest for the long term to ride out possible periods of volatility, Fidelity Special Situations’ strong performance record, flexible approach and manager’s stock-picking skill make it an attractive offer. Buy. EA

Source: Morningstar as at 26/09/17, *Fidelity International as at 31/08/17

Performance

Source: Morningstar as at 25/09/17

Top 10 holdings as at 31/08/17 (%)

Source: Fidelity International

Sector breakdown as at 31/08/17 (%)

Source: Fidelity International (net positions of long and short holdings)