‘I made 500pc investing in the worst stock in America’

Sam

Aphilosophy heavily marketed by fund managers is that the most important factor when you decide what to own is not its potential to grow, but the price you pay.

This concept has led to numerous “value managers” who only own companies they believe to have a share price fundamentally cheaper than their true worth.

One such manager is Alex Wright, who runs the £3.1bn Fidelity Special Situations fund and its almost identical £770m Special Values investment trust. Mr Wright, whose trust is on the Telegraph 25 list of our favoured funds, tells Telegraph Money how Neil Woodford’s implosion has helped his cause and how Brexit ruined one of his investments.

WHO IS THE FUND FOR?

Anyone who wants to make good long-term returns from British stocks. We aren’t concerned with short-term noise, so you should own the fund for at least three years.

WHAT ARE ‘VALUE’ STOCKS?

I buy shares on the basis that I think other people have got the story wrong and that the company is worth more than you pay. I generally look at companies that have done badly and where the market thinks there won’t be future profits, but where I think they can turn it around.

YOU OWN AVIVA. IS IT A ‘VALUE’ STOCK?

Most people think Aviva is a very poor company that doesn’t really have a strategy. The firm hasn’t grown its earnings substantially over the past couple of years. But it does a lot of good things in workplace pensions, asset management and insurance, as well as businesses overseas. It is complicated and volatile, and I think that complexity puts people off.

It was hurt by Brexit uncertainty but has posted very strong performance since the election. Its balance sheet is stronger than a lot of banks.

Alex Wright of Fidelity tells Meadows why the fall of Neil Woodford led investors to flock to his investment trust

HOW DO YOU EXPECT BRITISH STOCKS TO REACT TO BREXIT?

I think they will be fine. The British stock market isn’t the same as the British economy, and companies in the FTSE 100 index make about 70pc of their earnings abroad. This won’t be affected by Brexit.

The other 30pc will be affected by issues such as the value of the pound. But here shares are cheap as they have been held back by uncertainty around the risk of crashing out of the EU with no agreement or of a hardLeft government. Both risks have gone away, but shares are still cheap. I’m finding more opportunities in companies tilted towards Britain.

YOU ARE BORROWING LESS THAN YOU USED TO. WHY?

Borrowing has come down because we decided about a year ago to stop “shorting” stocks [betting that a stock will do badly]. We typically had 3pc5pc of the fund invested in shorts, but it was not adding value. They were always a small part of the story.

HOW DID THE WOODFORD SCANDAL AFFECT YOU?

Investors are increasingly interested

in buying small and medium-sized companies, like those I own, through an investment trust, the type of fund I manage. The Woodford scandal highlighted the difficulties of owning small and hard-to-sell companies in an “open-ended” fund. This is benefiting investment trusts.

WHAT HAS BEEN YOUR BEST INVESTMENT?

Electronic Arts, the video games developer, has contributed 10pc to our performance since I took over the fund. That is incredible.

It is an American company and was voted the worst firm in the country

£1,000 invested at launch would be worth £20,790 today

as in 2012 people thought traditional console games would be killed off by free games on mobiles. Then Sony and Microsoft produced internetconnected consoles that allowed multiple updates. Suddenly gamers were spending more on traditional games. We sold it a couple of years ago and it had gone up by 500pc.

AND YOUR WORST?

Bank of Ireland cost the fund 3pc of performance. Most of its profits are in Ireland but it has the British Post Office contract for mortgages. Its cost base is in Ireland, trading in euros. After Brexit the profitability of the British business became negligible. We sold at €4.50 and had paid €6.50 to buy in.

HOW ARE YOU PAID AND DO YOU INVEST IN THE FUND?

I get a fixed salary and a bonus based on the trust’s returns over three and five years. I invest in this and other Fidelity funds.

WHAT WOULD YOU HAVE BEEN IF NOT A FUND MANAGER?

It sounds corny, but I genuinely said I wanted to be a fund manager when I was 12. I watched my grandfather invest in stocks and it seemed amazing you could do it as a job. When I was younger I wanted to be an astronaut.