The sector was for years dominated by Anthony Bolton, who ran Fidelity Special Situations for 28 years, with great success, although this was followed by the less than lustrous performance of the China Special Situations funds.

But many other fund managers run similar funds, all looking for the unloved stock or the hidden value that mainstream managers have not identified.

Generally speaking, special situations fund managers tend to have a contrarian approach, and some would say invoke a bit of lateral thinking when it comes to selecting their stocks. Quite often they will invest in out-of-favour stocks, which they feel may have a potential for change.

Some would consider recovery funds to be part of the universe of Special Situations funds; they tend to be value stocks and are rarely used for income as very few of them pay a dividend. Some global managers will invest part of their portfolio into such funds.

The other point to bear in mind is that smaller company stocks, which are more prevalent in Special Situations funds, do better when market conditions become more positive. Smaller companies are more sensitive to changes in economic sentiment as they can grow earnings faster than the rest of the market. Special Situations is not necessarily the core part of an investor’s portfolio, but can provide an extra dimension for a client who wants to experiment with some spare cash, and take a bit more risk.

Melanie Tringham is features editor of Financial Adviser

This special report is sponsored by Fidelity. All editorial is independent.