Fidelity Special Values PLC (LON:FSV) has published its monthly factsheet for December 2023.
Portfolio Manager Commentary
UK equities finished the year strongly, driven by a sustained rally in risk assets that began in November. This positive momentum was primarily fuelled by signs of easing inflation and more accommodative comments from the US Federal Reserve, which led investors to factor in expectations of interest rate cuts in 2024.
UK equities are currently pricing in extreme pessimism and, as a result, trade at a significant discount to other markets. While the outlook is uncertain and corporate earnings could disappoint in the near term, this is also true of other markets such as the US, where valuations are meaningfully more expensive. Value stocks have outperformed growth stocks over the last three years, but they still have significant ground to catch-up. The current market environment of stickier inflation, higher interest rates and economic volatility is more aligned to the long-term pattern seen over the last 100 years. History suggests that over the long term value tends to outperform, given generally higher discount rates and a reversion to the mean. We, therefore, believe that we are in the very early stages of a long-term rally in value stocks. With its high dividends and low valuations, the UK market offers better prospective returns than many other asset classes, including global equities.
