Sanjeev Shah’s contrarian approach means the £2.4bn Fidelity Special Situations fund’s performance can be “somewhat lumpy” but 2012 saw the portfolio sit in the top decile of the IMA UK All Companies sector.
Last year, the fund grew by 27.5 per cent, outperforming the 12.3 per cent rise of the FTSE All Share benchmark and placing it 20th out of the 278 funds in the peer group. This is a reversal of 2011, when the fund was fourth quartile after losing 14 per cent.
Shah, who is in the top quartile for the five years he has been running the fund, says: “Given my investment style, performance from investing in special situations can be somewhat lumpy but I feel confident that over a medium-term horizon my approach will continue to perform well against both the market and competitor funds.”
Below, the manager reveals the five stocks that helped push the fund into the top decile last year and why he favoured them when they were disliked by the rest of the market.
“Lloyds effectively close to doubled over that period of time. Why did I like Lloyds? Essentially, because it’s a pure retail bank with a very good position of around 25 per cent of market share. The UK market has gone from seven or eight players to around four. Four players having around 70 per cent of the market is often conducive to much better competitive disciple than an eight-player market where there’s much more price competition. So I was buying a market leader which was not liked at all and I was buying it very cheaply.”
“Ladbrokes was a turnaround situation in gaming sphere and I felt it was undermanaged relative to its peers. About three years ago we had a conversation with the chairman, Peter Erskine, and reflected on what had gone wrong with Ladbrokes – how much the issues at Ladbrokes were associated with management mis-execution and how much was the market. To cut a long story short, six months later the management team had changed and you had a new team who we were fully supportive in terms of delivering the turnaround. The turnaround has been multi-pronged and fairly common sense.”
“M&A has been at multi-year lows in the UK market and last year the fund benefitted from five or six companies being taken out. Logica was one of those. It got taken out at about a 60 per cent premium to the then share price.M&A was always one of the things which I had at the back of my mind that Logica could be prone to. That was largely because you had big US and Indian players looking to consolidate the market over time.”
F&C Asset Management
“We bought a position before [chairman] Ed Bramson came on board and then increased it once he had built his stake. It’s the fund manager in the market that has probably been the most poorly managed over time and there was a significant turnaround opportunity at F&C. That has been driven by cost savings but also by certain revenue opportunities as well.”
“This was another top 10 holding and a leading contributor to 2012’s performance. Wolseley was about early recognition of the stabilisation and improvement in the US housing market.”