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Fidelity Special Values Plc

FSV: consistent contrarianism adds special value

26 Jul 2021 / Corporate research

Since the current manager took over in 2012, FSV has consistently outperformed its FTSE All-Share benchmark. The majority of the added value has come from stock selection, which derives from Fidelity’s consistent investment process. The manager has a contrarian approach, underpinned by value factors to protect any downside risk. A flexible approach means the manager can take advantage of the less efficient mid- and small-cap areas, as well as finding opportunities overseas. Although the mandate focuses on capital growth, FSV has produced steady dividend growth and has an attractive yield.

  • UK positives: With its economic mix, UK GDP suffered more than other developed countries in the pandemic, but this should lead to a stronger bounceback in the recovery. Business investment has been delayed over the past few years, but a catch-up should also fuel economic growth.
  • Other considerations: The trust typically has net gearing of up to 20%; while this adds to short-term volatility, it has added to returns and the long-term performance. Share liquidity has been improving, the closed-ended structure has inherent advantages and fees have been declining.
  • Valuation: With quoted investments, there are no valuation issues. FSV aims to keep a single-digit discount in normal market conditions. It has mostly done that, aided by an active discount management policy. The company has both bought back and sold shares, adding a small amount to investor returns.
  • Risks: With a value-based investment philosophy, value being out of favour has constituted a headwind, although one that the managers’ stockpicking has largely overcome to date. The UK market has been a long-term underperformer relative to global markets, and there is a risk that it will remain out of favour.
  • Investment summary: While FSV currently trades around NAV, its long-term performance justifies this. Meanwhile, the stability of the team and the investment process suggest that this performance is built on solid ground. The dividend yield is higher than the average of its peers, suggesting that it should be attractive to investors looking for income alongside capital growth.

 

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