Alex Wright: A decade to remember

When Alex Wright took over the Fidelity Special Values trust in 2012, the UK was just recovering from an economic crisis. As he celebrates a decade at the helm, it is on the cusp of another one.

The past decade has been a highly unusual one, both from a political and an economic perspective. Few would have predicted the UK leaving the EU, Donald Trump becoming US president or the Covid-19 pandemic and subsequent lockdowns; all events that had substantial effects on the UK stock market.

While this has provided a challenging environment, it’s one that Wright relishes for the opportunities it creates. “The UK market is still one of the world’s best markets in which to seek to add value, because company access is so much better in the UK and corporate governance is robust. It is a good place to be an active manager.” he says.

In his ten-year stewardship, Wright has built on the contrarian heritage of the trust established by veteran investor Anthony Bolton. By targeting unloved stocks on depressed valuations and leveraging Fidelity’s research resources, Wright has managed to unearth stocks that have generated outsized gains while limiting losses when turnarounds haven’t worked out.

A tough backdrop

This ability to find good stocks in weak conditions is important today, when the prospects for the UK economy are relatively gloomy. Wright believes a recession is likely, but the UK stock market is already factoring in a lot of bad news and, he suggests, uncertainty creates investment opportunities.

However, judicious stockpicking is a must, along with effective diversification. That means holding large companies such as Imperial Brands, Aviva and NatWest alongside small and medium sized businesses. He adds: “We want to ensure we've got exposure across the market in both defensive and cyclical areas. For example, this year our holdings in consumer cyclical areas have had a tough time, but our exposure to banks, life insurance and oil and gas stocks have held up well.”

He says turbulent markets often allow contrarian fund managers to pick up good companies at bargain prices. However, higher inflation and slower economic growth will bring additional risks for companies, and investors need to be on their toes. He adds: “While we are excited about the new ideas that are coming into the portfolio today, we are being selective and keeping some dry powder to reinvest.”

Value revival

Wright has been encouraged by the revival of the ‘value’ style. The trust’s strong performance has come in spite of its value style being out of favour for large parts of the past decade.  “The period since the financial crisis has been marked by low interest rates, subdued inflation and moderate growth.” he says. “With low cost of capital and low discount rates, some growth companies reached astronomical valuations compared to where they've been historically. This has been a headwind for the value style. The current environment of higher, likely stickier, inflation, rising interest rates and economic volatility is more representative of the longer-term pattern seen over the last 100 years. Such an environment does require investors to be valuation sensitive, agile and constantly looking for new ideas, which does favour the value style of investing. ”

Past Performance

His view is that the UK stock market remains undervalued – both historically and against other markets and for investors with a three- to five-year time horizon, it could be an interesting moment to invest. “The UK market with its higher dividends offers a better prospective return than many other asset classes, including global equities,” he says.

The next decade may be every bit as turbulent as the last for the UK, or the economy may bounce back stronger. Either way, it should not deter investors. When uncertainty is rife, there are typically more opportunities to pick up very attractively valued stocks for the discerning stockpicker.  Wright will be poised to take advantage.

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Important information

Past performance is not a reliable indicator of future returns. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Overseas investments are subject to currency fluctuations. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. The trust invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies and the securities are often less liquid. This trust uses financial derivative instruments for investment purposes, which may expose it to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Reference in this document to specific securities should not be interpreted as a recommendation to buy or sell these securities and is only included for illustration purposes. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment.  If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

The latest annual reports, key information document (KID) and factsheets can be obtained from our website at www.fidelity.co.uk/its or by calling 0800 41 41 10. The full prospectus may also be obtained from Fidelity. The Alternative Investment Fund Manager (AIFM) of Fidelity Investment Trusts is FIL Investment Services (UK) Limited. Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM1022/379953/ISSCSO00091/NA