A bias towards mid- and small-caps along with avoiding more challenged areas of the market has contributed to Fidelity Special Values’ strong performance over the last three years, according to Alex Wright.
The FE Alpha Manager, who took over the helm of the trust from Sanjeev Shah in September 2012, has managed to outperform his average peer in the IT UK All Companies sector by 42.11 percentage points over his tenure and has more than tripled the return of the FTSE All Share.
Performance of fund vs sector and benchmark over Wright’s tenure
Source: FE Analytics
This is no mean feat, especially seeing as markets have suffered a great deal of volatility this year as a result of the Chinese growth slowdown, the collapse in commodity prices, nervousness surrounding the Greek debt crisis and the impending interest rates rises from the Federal Reserve and the Bank of England. 
“It’s been great to have just celebrated my three-year anniversary of running Special Values as the manager and it’s even better to see that the trust is up in NAV terms by 73 per cent over that period,” Wright (pictured) said.
“The performance of the fund has been generated by a number of different ideas which is great – it’s what I’m looking to see, a bottom-up process looking for individual change stories across the market cap spectrum.”
The manager says that being overweight small- and mid-cap companies has been a big help to performance, as the FTSE Small Cap and FTSE 250 indices have significantly outperformed the FTSE 100 over one, two and three years.
Performance of indices over 3yrs
Source: FE Analytics
Currently, the £105m Fidelity Special Values trust has a 24.3 per cent exposure to the FTSE 100, which is less than a third of the FTSE All Share’s weighting. It has a 31 per cent exposure to the FTSE 250, which is almost double that of the index, and a 16 per cent weighting in FTSE Small Cap, which is more than four times that of the FTSE All Share.
Wright says a focus on smaller companies is naturally part of his investing style as a result of his time at the helm of the open-ended Fidelity UK Smaller Companies fund, which he has run since 2008 and co-managed alongside Jonathan Winton since 2013.
Another reason the manager believes his trust has delivered a strong performance is his decision to stay away from the more challenged areas of the market such as mining stocks, where damage is obvious as commodity prices fall, and UK supermarkets, which have been struggling as a result of a bitter price war.
In terms of stock specifics, US games developer Electronic Arts has been the best contributor to the trust’s performance and is up by several hundred per cent since Wright bought into it.
Currently, the stock is the fourth largest holding in the portfolio at 3.5 per cent and is part of the trust’s 10 per cent weighting in US equities.
Two of his Irish stocks, UDG Healthcare and business support service DCC, have also given the fund a helping hand in terms of performance, as has wealth manager Brewin Dolphin, which has undergone a change programme and has expanded its margins significantly over the last three years.
Performance of stock vs index over 3yrs
Source: FE Analytics
“The investment trust structure has allowed me to enact these positions, giving me the ability to gear which has also been a benefit over the three-year period that markets have risen, and has also given me the confidence to invest in some of these more illiquid positions down the market cap spectrum where we have seen some very significant outperformance,” Wright explained.
“I continue to look right across the market and I think an investment trust really gives you the flexibility to do that. I’m taking advantage of that within Special Values. Again, it continues to be very stock specific.”
Despite the manager’s penchant for smaller stocks, he has added some large-cap ideas to the portfolio recently such as CRH, which is an international building materials group headquartered in Ireland.
Over the last year, it has outperformed its FTSE 100 index by 36.27 percentage points, returning 29.2 per cent.
Performance of stock vs index over 1yr
Source: FE Analytics
Wright has also looked more at the oil space recently and has added a position in BP in addition to increasing his Shell holding, which is currently the seventh-largest weighting in his portfolio.
He hasn’t lost his roots, however and has also increased his exposure to mid-caps through positions such as Ultra Electronics – a UK company serving the defence, security, transport and energy industries.
Over the manager’s tenure, Fidelity Special Values has achieved a top-decile Sharpe ratio, which measures risk-adjusted performance, and a top-quartile alpha ratio, which measures performance in addition to the benchmark.
The trust, which is 25 per cent geared, is trading on a discount of 0.3 per cent and has ongoing charges of 1.2 per cent.
