The equities market has entered the early stages of a bull run, according to Sanjeev Shah, who believes financials could be the sector to benefit the most from this.
, who manages Fidelity Special Situations, has been under pressure for much of his tenure since taking over from Anthony Bolton in 2008. However, his overweight in cyclical assets has seen him storm to the top of the performance tables so far this year.
The manager believes financials will help to sustain the rally in the short-term, although in the long-run he points to more sustainable themes.
"I think we are in the early stages of a new bull market in equities, and in the short-term I believe financials have the opportunity to continue to provide leadership," he said.
"However over the longer term it will be themes such as the emerging market consumer, the digital economy and internet which could provide leadership. I believe the commodity bull market is over."
The manager thinks that fears surrounding financials prior to the crash of 2008 were just; however he adds that times have changed and the unloved sector will continue to strengthen.
"As a result of the financial and eurozone crisis, there has been a lot of concern regarding financials. This was justified given high levels of leverage and the need to write down assets," he said.
"This led to financials becoming extremely disliked by investors and very cheap in a historical context. Crisis brings opportunity and there will be winners and losers in the new environment. HSBC is a potential winner given its strong capital and funding position."
According to FE data, HSBC is Fidelity Special Situations' largest individual holding, making up 8.6 per cent of the total portfolio. It also holds Lloyds and London Stock Exchange Group in its top-10.
Performance of stocks and indices in 2012
Source: FE Analytics
Financials companies have dominated the list of best-performing FTSE 100 stocks so far this year. Lloyds is number-one in the index with returns of 87.2 per cent, followed by Aberdeen Asset Management with 74.8 per cent and Standard Life with 73 per cent.
HSBC is a top-20 performer, delivering returns of 38.2 per cent.
Shah has upped his exposure to financials lately, adding to positions both in and out of the banking sector.
"I have large exposure to retail and commercial banks with a good market position, such as Lloyds. In addition I am finding several ideas in the diversified financials sector such as the London Stock Exchange and Jupiter Asset Management," he said.
While the manager believes that equities will surge next year, he says he would not rule out a market correction at some point.
He commented: "The macroeconomic environment remains uncertain given the fiscal cliff, the eurozone crisis, leadership transition in China and geopolitical uncertainty in the Middle East."
"Over the next few months I expect markets will continue to climb 'the wall of worry'; however at some point later in 2013 I do expect a correction in markets and perhaps a longer, drawn-out consolidation phase."
"This will be an opportunity to add to equities exposure," he added.
Shah began running the £2.4bn Fidelity Special Situations in January 2008, taking over from star manager Anthony Bolton.
The fund's underperformance during the early stages of Shah’s tenure has been well documented over the years. Investors are also well aware of his contrarian approach to investing, which meant the portfolio struggled as markets recovered after the financial crash.
However, Fidelity Special Situations has gathered momentum in recent months, returning 28.95 per cent over the last year.
According to FE Analytics
, it is a top-quartile performer over Shah's tenure. Since he took over it has returned 20.3 per cent while the IMA UK All Companies sector has made 11.28 per cent.
It has also beaten its FTSE All Share benchmark's return of 13.65 per cent over the period.
Performance of fund vs sector and benchmark since January 2008
Source: FE Analytics
Fidelity Special Sits has a diversified portfolio of 133 holdings. The fund has 30.8 per cent in financials, making it the fund’s largest sector weighting. It is also considerably overweight consumer services.
The fund requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.70 per cent.