According to data from FE Analytics, more than £500m has been withdrawn from the fund in the last year, putting Shah under increasing pressure to justify his approach.
However, speaking exclusively to FE Trustnet at the Fidelity Investment Summit last week, he insisted that his strategy of picking cheap and unpopular stocks is the right one.
"These have been difficult years for me in terms of performance. You can see it has been a hard time for value stocks in general but nothing has changed in my style," he said.
Value stocks have performed poorly against their growth counterparts since 2009, but Shah says this relative underperformance hasn’t fazed him.
He commented: "All the sentiment indicators that I look at and all the value indicators I look at were at extreme levels at the end of 2011 and as a result I positioned the fund slightly more aggressively in the areas that were more consumer cyclical, had more financial exposure overall and were slightly less defensive."
"Markets never go up in a straight line and we’ve seen between April and June a setback in market dynamics. However, I’m still positive on the direction of markets overall," he added.
Over three years the fund’s performance has been in the bottom quartile of its IMA UK All Companies sector, and its return of 22.38 per cent is significantly lower than the 36.14 per cent of its FTSE All Share benchmark.
Performance of fund vs sector and index since January 2008
Source: FE Analytics
Shah took over as manager of Fidelity Special Sits from industry icon Anthony Bolton in January 2008. Since then, the portfolio has lost 1.12 per cent – marginally less than its UK All Companies sector average but more than its FTSE All Share benchmark.
In the 10 years prior to Bolton’s departure, the fund returned 289.78 per cent, compared with 82.43 per cent from the All Share.The fund has picked up somewhat this year, with returns to date of 5.33 per cent, putting it in the top quartile of its sector and ahead of its benchmark.
Shah’s focus on cheap and under-owned stocks has led to him taking an overweight position in financials.
"I’m still positive on the big UK banks so I have a big position in Lloyds and a big position in HSBC," he commented.
He says that the consolidation of the market in recent years, with Irish and Australian banks quitting the UK and Santander absorbing some smaller lenders, is a positive for the sector’s future.
A reduction in the regulatory pressure on retail banking and cheap valuations have led him to his 7.5 per cent position in HSBC and 5 per cent in Lloyds – the portfolio’s two top holdings.
"Valuations are at multi-decade lows. Even if you adjust the book values for their exposure where we don’t think they’re taking sufficient hits it doesn’t change the picture," he explained.
Lloyds is the biggest retail bank in the UK with a market share of 25 per cent and Shah says that even under an "Armageddon scenario" the bank’s share price of 26p is far too low.
He thinks 60p is a fair value given its earnings potential, while his worst-case scenario would see that fall to 38p, meaning the bank is still cheap.