Bestinvest has the slashed the ratings on two funds managed by Fidelity’s Sanjeev Shah after investors experienced “mixed fortunes”.
The financial services company has placed a one-star rating on the £2.5 billion Fidelity special situations fund and the £323.3m Fidelity special values investment trust. Both funds previously held two stars.
Bestinvest claims investors have “endured mixed fortunes” since Shah took over the portfolios more than four years ago, with his success of 2009 contrasting with the weaker performance in the special situations fund as positions in financials and media weighed on performance.
“Whilst Shah’s returns since inception have been in line with the broader market, volatility has been high,” says fund researcher Robert Harley.
“We believe investors can achieve better risk adjusted return profiles through alternative peer group funds, consequently we are downgrading our recommendation to a sell.”
The Fidelity special situations fund’s factsheet to March 31 shows the portfolio has outperformed the FTSE All Share Index benchmark over the year to date. But the fund has underperformed over one and three-year timeframes.
Similar performance has been seen in the Fidelity special values investment trust. (article continues below)
Adrian Lowcock, senior investment adviser at Bestinvest, notes that a contrarian investor such as Shah will witness periods of underperformance by the nature of their style.
However, he adds that having the conviction to stand behind investment ideas for as long as necessary is important for a contrarian to achieve long-term success.
“As a contrarian investor, there are a question marks over the conviction behind [Shah’s] investment decisions,” Lowcock concludes.
“You need someone who is willing to stick by their decisions because a contrarian investor who doesn’t can lose performance very quickly.”
Bestinvest also awarded a new four-star rating to Michael Clark’s Fidelity moneybuilder dividend fund, owing to the portfolio’s lower volatility and the manager’s willingness to look outside of the UK for opportunities.
Harley says: “We interpret Clark’s investment style as being more defensive, blue-chip orientated, consequently we would expect his fund to be a less volatile option in the UK equity income peer group.
“The manager is prepared to take advantage of IMA rules enabling him to invest up to 20 per cent of his fund’s NAV in non-UK listed equities.”