Fidelity Special Values (FSV) has announced its annual results for the year ended 31 August 2024. The company delivered a NAV total return of  24.1% and share price total return of 24.3%, comfortably ahead of the benchmark index return of 17%. The company also announced that the board has recommended a final dividend of 6.30 pence per share which together with the interim dividend payment of 3.24 pence per share (totalling 9.54 pence) represents an increase of 8.4% over the prior year for a current yield of 2.8%.

Regarding the performance, the manager noted that the portfolio in aggregate has had an unusually strong earnings delivery, and performance has benefited from improving trading outlooks. The stronger economic backdrop has also meant that the share prices of FSV’s more economically sensitive small and mid-cap holdings have started to recover after a tough 2022-23 period.

Disucssing the performance and the outlook for the trust, chair Dean Buckley commented:

“Whilst geopolitical challenges remain, from the conflict in the Middle East and war in Ukraine to the forthcoming US presidential election, there is a growing sense that, from an economic and market standpoint, things are beginning to return to some sort of ‘normality’. Heightened post-Covid rates of inflation across developed markets have moderated significantly, and monetary policy is beginning to follow suit, while economic growth expectations are tending towards a more ‘soft landing’ scenario than may have been the case this time last year. All these factors would normally point to a more benign backdrop for equity investment, and indeed some of the larger equity markets – from the US to Japan – have reached new highs in the year under review, albeit not without some volatility.

“While investor attention may largely have been captured by US technology stocks, particularly those relating to artificial intelligence, there has been a quiet renaissance in the still-unloved UK equity market, with the FTSE All-Share Index (benchmark) producing a very creditable total return of 17.0% in the 12 months to 31 August 2024. It is therefore particularly pleasing to be able to report another year of outperformance by your company, with a net asset value (“NAV”) total return of 24.1% and a share price total return of 24.3%.

“One of the things that sets your company apart is your portfolio managers’ focus on opportunities across the market cap spectrum. Perhaps unusually, there was no one standout area in the UK market’s performance for the year, with total returns of 16.9% for the large-cap FTSE 100 Index, 17.3% for the mid-cap FTSE 250 Index and 18.7% for the FTSE Small-Cap Index. This provides some context to your company’s performance, with positive contributions coming from all areas, from banking giant NatWest Group to mid-cap support services stock Babcock International Group and Irish housebuilder Glenveagh Properties. You can find out more about the contributors to performance in the portfolio managers’ review below.

“The UK equity market, which has been broadly out of favour on the international stage since the Brexit vote in 2016, continues to trade at a material valuation discount to some other large developed markets, particularly the US. A key element to your company’s investment approach is to identify quality companies with valuations lower than peers within the UK market. Thus, while a more positive backdrop may see investor attention returning to the UK and pushing up valuations in aggregate, the cheaper companies that your portfolio manager favours could see an additional tailwind.

“Of course, equity investing is a long-term endeavour, and one year of standout performance should not be viewed in isolation. Alex Wright has now been your lead portfolio manager for 12 years, and it is pleasing to report that he has outperformed the benchmark in eight of those 12 years, generating a NAV total return of +272.2% and a share price total return of +305.5%. Over this period, an investment of £1,000 would have returned £3,055 with dividends reinvested.

“Alex has been supported since 2020 by co-portfolio manager Jonathan Winton. Jonathan and Alex share the same contrarian value-based philosophy and process and have worked closely together for more than a decade, since Jonathan became co-manager of the open-ended Fidelity UK Smaller Companies fund in 2013. He has been lead manager of this fund since 2014, and in July this year was awarded the Investment Week Fund Manager of the Year Award in the UK Smaller Companies category. While Alex has the final say on buy and sell ideas for your company’s portfolio, Jonathan’s wealth of expertise in the smaller companies space means that he is a key contributor to such ideas, and the two often attend company meetings together.”

FSV : Impressive returns for Fidelity Special Values in 2024