Two popular UK value trusts

There are many different ways that an active fund manager can look for opportunities, with two of the most prominent approaches being growth and value. Growth investors target stocks that have the potential for above-average earnings expansion, while value investors focus on shares that are thought to be trading below their intrinsic worth.

History shows that these contrasting styles tend to outperform each other in alternating cycles, with each typically lasting several years. During the low-interest-rate decade leading up to 2020, growth investing was in the ascendency; but since then, however, it has been value that has led the way.¹

Having a strong tailwind like this can make a significant difference to a manager targeting that part of the market, as recent performance demonstrates. Fidelity Personal Investing customers appear to recognise this already, with two high-flying, value-oriented investment trusts featuring among the top ten bestsellers in October. 

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Fidelity Special Values

In third place was Fidelity Special Values, managed by Alex Wright and Jonathan Winton, who look for unloved companies undergoing positive change that the market has yet to recognise. They have a disciplined investment process that focuses first on evaluating the downside risk and then on identifying positive change and upside potential.²

It is a contrarian approach that requires extensive research to spot opportunities that are out of favour with other investors. The depth of Fidelity’s team of analysts ensures that there is a sufficient number of strong ideas to build a diversified portfolio at all points of the market cycle.³

Fidelity Special Values provides exposure to large, mid and small-cap stocks in the UK, as well as a limited allocation overseas, with the 50 largest positions at the end of September accounting for 83.6% of the assets.⁴ Over the last five years it has generated an annualised return of 16.1% and currently offers a yield of 2.4%.⁵ It is one of the AIC’s next generation of dividend heroes, with 15 consecutive years of increased distributions. 

Writing in the recent annual accounts, Wright said that the UK market has an underappreciated richness of opportunity, combining strong earnings growth, high dividend yields and low valuations.⁶ 

“The portfolio benefits from a favourable upside/downside profile and our holdings trade at a meaningful discount to the broader UK market, despite exhibiting resilient earnings, strong returns on capital and relatively low levels of debt. This quality profile reinforces our confidence in delivering attractive long-term returns for investors.”⁷

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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. These trusts can invest in overseas markets so the value of investments can be affected by changes in currency exchange rates. Before investing, please read the relevant key information document which contains important information about each investment trust. Shares in investment trusts are listed on the London Stock Exchange and their price is affected by supply and demand. Investment trusts can gain additional exposure to the market, known as gearing, potentially increasing volatility. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.