Alex Wright, Portfolio Manager, Fidelity Special Situations & Special Values

As the UK market approaches new highs, Alex Wright, portfolio manager of Fidelity Special Situations & Special Values, outlines why he remains optimistic about the prospects of the UK market. Even after strong returns seen over recent months, the UK remains cheap versus other markets and continues to offer attractive opportunities for value investors.

UK equities have outshone many developed market peers year to date, with the FTSE 100 recently hitting new highs of around 9,000 points. This marks a significant milestone in what many are beginning to recognise as a genuine revival in UK equities.

This outperformance comes against a backdrop where market consensus at the end of last year overwhelmingly expected US dominance to persist. Yet the exact opposite has occurred as US trade policy announcements and a reversal of the US exceptionalism narrative led to a weaker dollar. This reversal highlights the benefits of a contrarian investment approach and the importance of exercising caution in areas with excessive optimism and heightened valuations.

More broadly, we are starting to see a resurgence in UK equities, with buying interest returning to the market. Encouragingly, this has filtered down the market cap spectrum where we have a structural bias toward medium and smaller sized companies, highlighting the valuation opportunities available.

Finding value in overlooked areas

Our investment style employs a contrarian-value stock picking approach. We look for investment ideas across sectors and the market cap spectrum, focusing on unloved companies entering a period of positive change. The philosophy recognises that turnarounds take time to bear fruit and requires investors to buy into the story. By building a diversified portfolio of stocks in different stages of their recovery process, the intention is to deliver outperformance across different market environments.

The portfolio remains diversified with around 80- 90 holdings across multiple sectors, with financials representing the largest sector allocation while maintaining diversification across sub-sectors, geographies and business models. The investment process is driven by bottom-up stock selection, with the managers dividing the market into four super sectors to translate positioning changes.

64 | The Adviser