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Smaller companies slant for Fidelity UK Opportunities

Fidelity International has created a fund that will invest mainly in the equities of UK smaller companies.

The UK opportunities fund will invest for growth in a portfolio comprising at least 80 per cent in UK smaller companies, with the ability to invest up to 20 per cent in medium sized and bigger firms.

The smaller firms that provide the bulk of the portfolio will be unloved and out of favour, due to periods of underperformance, but where fund manager Alex Wright thinks the further falls are limited through factors such as a historically low valuation, asset backing or where there are high barriers to entry in the market in which the firm is operating.

Wright will invest in firms where he anticipates a turnaround in a stock’s fortunes, which has not been priced in by the market. Wright has been running an institutional portfolio along the same lines since 2008. He joined Fidelity from university in 2001, working as analyst in various sectors, including UK small cap, until becoming a fund manager in 2008. He also assists Sanjeev Shah in running the Fidelity Special Situations fund.

Wright will hold around 100 stocks in the new fund that are at different stages of the recovery process. He says smaller companies are less researched than bigger companies, so that further investigation can lead to the discovery hidden gems before the stockmarket recognises their worth.

Due to their size, smaller companies have more scope to grow than bigger firms and the current environment may suit them because they have historically performed well during economic recovery. Fidelity could face competition from Standard Life, Marlborough Fund Managers, Old Mutual and Invesco Perpetual but higher volatility may put some investors off the UK Smaller Companies sector.

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