Portfolio Manager Commentary
UK equities edged higher in June as negotiations on extending the US debt limit were ultimately resolved. Interest rate uncertainty remained a feature of markets, as the UK’s headline consumer price inflation remained stubbornly elevated at 8.7% in May. Core inflation, which excludes energy and food, accelerated to 7.1% from 6.8%, pushing gilt yields to levels above those seen during last year’s mini-budget crisis. The Bank of England increased interest rates by 0.5% in June, marking its thirteenth consecutive rate rise.
The relative attractiveness of UK valuations and the large divergence in performance between different parts of the market continue to create good opportunities for attractive returns from UK stocks on a three-to-five-year view. The smaller end of the market cap spectrum is particularly rich in investment opportunities given the lack of research coverage. For us, this has always been a big structural overweight. Smaller companies have incurred severe deratings over the past year as they are thought to be more
cyclical and thus more susceptible to an economic slowdown. However, some of the share price drops, in our opinion, have been indiscriminate. The UK market with its high dividends and low valuation offers a better prospective return than many other asset classes.
On a rolling 12-month basis, the Trust recorded NAV and share price returns of 8.2% and 1.7% respectively, compared to 7.9% for the index.
Fidelity Special Values PLC (LON:FSV) aims to seek out underappreciated companies primarily listed in the UK and is an actively managed contrarian Investment Trust that thrives on volatility and uncertainty.