The UK stock market is well-positioned to withstand what Fidelity Special Values (FSC ) manager Alex Wright describes as the current ‘US-centric storm’.

Here, the contrarian value investor is referring to US president Donald Trump’s tariff announcements, which sent global markets into a tailspin over the past few weeks.

‘Direct tariff exposure is minimal given the UK’s small export base and service-oriented economy,’ Wright explained in Fidelity Special Values’ results covering the six months to the end of February.

‘The UK’s sector composition is skewed towards defensive areas such as consumer staples and utilities, which could provide resilience against global growth weakness and trade downturns.’

He acknowledged that the UK market’s international nature means it will feel some effects from the tariffs, mostly from the ‘broader implications of a likely deceleration in US and global economic growth, rather than direct tariff-related hits’.

‘Recession risks have clearly escalated, and the lingering uncertainty is what the market is currently pricing in,’ Wright noted.

During the market volatility that followed Trump’s tariff announcements, the fund manager has added to domestic-facing businesses that he believes are attractively valued and relatively insulated from tariffs.

Small caps lag

Over the six months to the end of February, Fidelity Special Values’ net asset value (NAV) grew 1.8%, while its shares gained 5.2%, matching the FTSE All-Share index.

The trust’s board attributed the rare lag in NAV to a ‘significant performance divergence’ between large and mid-cap stocks; the FTSE 100 gained 6.5%, as the FTSE 250 declined 2.5% over the period, which affected the medium and smaller companies focused portfolio.

Performance detractors included engineering consultancy group John Wood, engineering company Keller and IG Design, which manufactures celebrations products and gifts.

Meanwhile, several of the trust’s bank positions performed well over the period, including Standard Chartered, NatWest and AIB Group, buoyed by share buyback announcements.

Fidelity Special Values also benefited from its holding in Direct Line Insurance after Aviva agreed to acquire the company for £3.7bn.

Over the six-month period, Wright spotted opportunities in cyclical sectors like industrials, advertising and staffing. He also increased exposure to selected real estate stocks and housing-related names ‘where demand appears to be stabilising and valuations remain attractive’.

The £1bn trust recently increased exposure to retailers specialising in big-ticket items, where the manager notes that sales are 10-25% below historical volumes. He expects housing market volumes to strengthen and interest rates to fall, coinciding with a reduction in industry competition.

Elsewhere, the team spotted opportunities in defensive sectors, adding to positions in Reckitt Benckiser, British American Tobacco and National Grid following share price weakness.

Finally, Wright highlights small caps as a ‘particularly attractive hunting ground’, trading at an aggregate price-to-earnings ratio of below 10x.

Over the past five years, Fidelity Special Values’ shares are up 122.8% versus 56.3% by the average trust in the AIC’s UK All Companies sector. The trust trades at a 4.3% discount and yields 2.9%.