It’s certainly a bold mission statement. In its most recent annual results, Fidelity Special Values claimed not only that it was actively managed and sought out the contrarian positions that others pass by, but also that it “thrives on volatility and uncertainty”. Given the markets over the past two years, that feels like a rare and possibly foolhardy boast.
Still, overseen by Alex Wright, 40, the same fund manager since 2012, this investment trust has managed to clock up some impressive historical returns, albeit with some notable exceptions, including last year, when it underperformed relative to its benchmark, the FTSE All-Share index.
The portfolio also has been rejigged recently in order to adopt a more defensive position against a likely weakening economic backdrop. In theory that, along with its accumulated positions in companies that it believes are undervalued, should set it fair for the months, perhaps years, ahead.
Fidelity Special Values is an investment trust launched in 1994 that occupies a position in the FTSE 250. It aims to generate capital growth for shareholders by investing primarily in UK companies, in particular targeting those whose share prices have been underperforming but that could be primed to return to form. Just under 80 per cent of its 90 or so investments are London-listed, although two of its biggest holdings have their headquarters overseas: CRH, the Irish building materials group; and Roche, the healthcare business based in Switzerland. By sector, the portfolio is diverse, with slightly less than a third held in financial companies and a little more than a quarter in industrials, but, with no direct exposure to technology, a tiny amount of telecoms and few utilities.
Looked at a little more closely, some of the fund manager’s decisions do look daring. There are big positions in BP and Royal Dutch Shell, the oil and gas groups whose recent share price performance has been woeful. There is Aviva, too, the FTSE 100 insurance conglomerate effectively in turnaround under a new chief executive.
While it is overweight relative to the All-Share in Imperial Brands, it is underweight in British American Tobacco, the other big UK-listed cigarettes group. Both are risky plays, given the scrutiny that regulators are paying to alternative nicotine-based products, such as vapes and e-cigarettes. At the same time, they may yet win out over the longer term and in the meantime are generous dividend payers. The trust is also relatively light in Diageo, the global drinks group, and Unilever, the consumer goods company, both of which tend to be favoured by defensive investors.
Yet Fidelity Special Values does have a very strong track record. Based on both its share price and the net value of its assets, it has beaten its benchmark over one, three and five years and, very comprehensively, since it started buying and selling in 1994.
The trust’s investment approach clearly has considerable merit. The UK stock market has underperformed its peers both on the Continent and in the United States and the argument that shares remain cheap looks compelling. The shares, which offer a manageable dividend yield of just over 2 per cent, tend to trade at a modest premium to the net value of the trust’s assets of a couple of per cent, although it is commited to taking steps to control the gap if it threatens to go into double digits. The shares, up a penny, or 0.4 per cent, at 269½p, look extremely respectable and, if owned, should be held over the long term.
Advice Hold
Why Portfolio is jamful of companies that could claim to be undervalued and the performance track record is very strong
Speedy hire
Each year on the day that the clocks go back for winter, Speedy Hire receives thousands of orders within hours for its largest tower lighting units, so that building sites across the country can carry on working, even though the dark comes sooner and leaves later.
This snippet, as well as showing that it remains a business heavily exposed to the construction sector, also demonstrates how much it has diversified to dilute the effect.
Speedy Hire, established in Wigan in 1977, is Britain’s largest provider of tools and equipment for hire, to the trades, big construction companies and to individual consumers. It rents out more than 3,500 bits of kit, including everyday tools for builders, as well as lifts, winches, hoists and scaffolding, essentially the pieces of equipment that businesses need but are unlikely to own. As well as the hire business, which accounts for about 60 per cent of revenues, it has a services division, which offers training, testing and inspection. This also manages fuel, mainly for larger customers, and sells disposable necessities, such as face masks and first aid kits.
The company still generates just under half its income from construction, but it has dramatically increased its revenues from other small and medium-sized businesses.
This new look for Speedy Hire is the work of Russell Down, 54, who joined as finance director in April 2015 and two months later became chief executive. He took over a business in crisis and has made it sustainable, cutting back the number of product ranges, introducing an app and targeting higher-margin business customers. Under his leadership, Speedy Hire also has been acquisitive, buying companies whose activities complement the core rental operations.
Speedy Hire’s shares have risen by just under 60 per cent in the past six months, in a bounce driven in part by Boris Johnson’s general election win that gives it a valuation that finally begins to take account of Mr Down’s achievements.
Up ¾p, or 1 per cent, at 79½p yesterday, the shares change hands for 12.6 times Peel Hunt’s forecast earnings and carry a dividend yield of 3.1 per cent. They are still worth holding.
Advice Hold
Why Solid turnaround should produce gains in the longer term
