Where to invest FUND FOCUS

UNCERTAINTY over Brexit abounds, but it is of little concern to fund manager Alex Wright of investment house Fidelity. No sleepless nights yet for the manager who six years ago stepped into the investment shoes of the legendary Anthony Bolton.

Although Wright runs two investment funds predominantly invested in the UK stock market, he remains remarkably relaxed over whether Theresa May will lose the Commons vote on her Brexit deal on Tuesday. Or for that matter about whether the country ends up doing no deal or agreeing revised terms.

As far as Wright is concerned, the UK stock market as a whole is ‘cheap’ and provides him with some outstanding opportunities to buy good companies at competitive prices. Businesses that will stand the funds and their investors in good stead over the coming months and years. ‘There is a lot of irrationality out there,’ he says. ‘Many institutional investors are ignoring the UK stock market because of the Brexit factor, but in so doing they are ignoring value that cannot be obtained elsewhere.’

As a fund manager, he says he is the most excited since 2011 when the Eurozone was hit by a sovereign debt crisis that swept across Portugal, Spain, Greece, Italy and Spain. During periods of such uncertainty, Wright thrives, picking up good companies at attractive prices that he can make a profit on, either short or long term.

The two funds he manages, Fidelity Special Values Investment Trust and Fidelity Special Situations, are set up on similar lines, holding some 100 common stocks. The only difference is that Special Values has greater borrowing powers which Wright has used to build a mini sub-portfolio of 20 micro stocks. Currently, the two funds have 35 per cent of their UK stock market exposure invested in ‘UK facing stocks’ – companies that derive most of their earnings domestically. The remaining 65 per cent comprises businesses that are more international in outlook.

Wright’s contention is that if May does not get her way on Tuesday and a Brexit deal cannot be agreed, sterling is likely to fall, benefiting companies with big overseas earnings.

But if an agreement is reached before next March, the stock market is likely to react positively, impacting favourably on all listed companies but in particular on many domesticfocused companies whose shares have been deflated the most by Brexit nerves. The likes of insurers Aviva and Phoenix – and banks Lloyds and Royal Bank of Scotland. All are key holdings in both funds and earn most of their revenues in the UK.

Wright has proved a successful heir to Bolton. Over the past five years, Special Values has delivered a total return of more than 45 per cent, comfortably in excess of the UK stock market. Even over the past year when the FTSE All-Share has slipped back, the trust’s shares have just about held their head above water. Special Situations has also outperformed the index since Wright took over in early 2014.

Wright’s approach is contrarian, buying unloved stocks and then hoping for them to become loved again. The best ever contributor to the Special Values’ performance was games maker Electronic Arts that he sold last year after a 500 per cent share price gain.

Fidelity Special Values and Special Situations represent solid long-term investments for investors. Good building blocks for exposure to the UK stock market.