His approach has led to his five crown rated Fidelity UK Smaller Companies being the best performing portfolio in the IMA UK Smaller Companies sector since its launch in February 2008 with returns of 250.74 per cent; plus it has considerably beaten its benchmark – the NUMIS Smaller Companies ex IT index – over that time.
Performance of fund vs sector and index since Feb 2008
Source: FE Analytics
Following his success with his small cap fund – and his Fidelity Special Values IT – Wright (pictured) was handed the responsibility of Fidelity’s flagship Special Situations fund at the start of this year.
Wright has a clear cut strategy for investing in unloved companies that have the ability to turn their fortunes around, however once that value has been recognised by the market he will exit his position with immediate effect. With that in mind, Wright highlights the stocks he has been buying, trimming and the ones he has sold out of completely in his £2.8bn Fidelity Special Situations fund.
Buy – SSE
Wright says his largest purchases since taking over the Special Sits fund has been FTSE 100 electric utility company, SSE. He is a big fan of the stock and says it will be one of the real winners in the changing UK energy market.
“Years of low returns have led to underinvestment,” Wright explained. “However, over the coming years many of the country’s coal-fired plants are to switch off, which will reduce supply considerably as there is currently little in the pipeline to replace it.”
“SSE, which has developed a strong position in renewable energy sources, should be able to benefit from this change in the UK energy mix, and the potential for improved returns for its existing and planned investments as supply tightens.”
SSE is one of the largest listed companies in the UK with a market cap of more than £14bn.
While the stock has performed well over the long term, shares in SSE – and other energy companies such as Centrica – sold off last autumn as Labour leader Ed Miliband announced his plans to freeze energy prices.
Performance of stock vs index over 1yr
Source: FE Analytics
SSE has since bounced back, but it means the stock has returned just 6 per cent over the last 12 months.
The company pledged to freeze energy prices until 2016 this morning, and it remains to be seen how the market digests this news. Shares are up in early trading.
Apart from Wright’s Special Sits fund, there are 17 funds that count SSE as a top 10 holding. They include Marlborough Multi Cap Income and FE Alpha Manager Francis Brooke’s Trojan Income fund.
Trim – GlaxoSmithKline
GlaxoSmithKline, the FTSE 100 pharmaceutical giant, is one of the most popular names with equity managers. A staggering 355 funds in the IMA universe count it as a top 10 holding and it features in close to 80 per cent of UK equity income funds’ list of top 10 holdings, for instance.
GlaxoSmithKline has also rewarded investors over the long, medium and short term, with shares in the company having returned more than the FTSE 100 over the last year.
However, Wright says he has taking money out of the holding he inherited from Sanjeev Shah.
“The reduction in Glaxo was a result of both my approach to portfolio construction, and my order of preference for stocks within the pharmaceutical sector,” Wright explained.
“The position I inherited in Glaxo was larger than I am generally comfortable with – I view stock weights in absolute terms, rather than relative to a benchmark, and I also tend to limit my biggest positions to 5-6 per cent of the portfolio, for high conviction, liquid names.”
However, the manager points out that he still likes the sector as a whole, but prefers to use his international weighting to gain access to the industry’s revival.
“I am positive on the pharmaceutical sector as a whole, as stocks are generally trading at the lower end of their historical range with the potential for new drug pipelines to generate growth and a re-rating,” Wright said.
“Within the sector my preferred name is Sanofi, so I have shuffled the weights of the two stocks to reflect this view.”
Wright isn’t alone in backing the pharmaceutical industry. FE Alpha Manager Jan Luthman recently told FE Trustnet that he had been upping his exposure to pharmas as he says it is one of the most exciting long term growth sectors in the market.
Sell – RBS
Wright has completely sold his holding in RBS. The bank has been dogged with issues since the crash and unlike one of its main competitors, Lloyds, its shares have not recovered as concerns surrounding its investment banking division have spooked the market.
Performance of stocks vs index over 2yrs
Source: FE Analytics
While Lloyds is Wright’s largest holding in his Special Sits fund, making up 6 per cent of his AUM, the manager says that RBS has no place in his portfolio at this current time as he thinks the share price could fall further.
“I sold RBS as I was uncomfortable with the level of downside protection, the first thing I look for in any investment opportunity,” he said.
“Unlike Lloyds, the rehabilitation process at RBS is in its early stages, and as a result there is a lot of uncertainty. While there are some good businesses in the group, there are some areas that I am very cautious on, particularly the investment bank.”
“Politically it is very tough to run an investment bank which is effectively owned by the government. As a result, the investment bank has no real value to the group, limiting upside,” he added.
FE Alpha Manager Guy de Blonay recently told FE Trustnet that he too had sold his position in RBS, and like Wright, favours Lloyds.
Nevertheless, there are five IMA funds that count RBS as a top 10 holding; two of which are the top performing Schroder Recovery and R&M UK Equity Long Term Recovery funds.
