Fidelity’s Alex Wright has turbo-charged his exposure to equity markets to take advantage of the past month’s dramatic sell-off.
Mr Wright has bought into a FTSE 100 futures contract, equivalent to 8 per cent of the value of his £2.7bn Fidelity Special Situations fund, as a way of ramping up his exposure to the UK’s biggest companies.
The contract has ramped up the fund’s exposure to the UK equity market to the equivalent of 110 per cent of its assets, reflecting Mr Wright’s very bullish stance.
The manager said he had made the aggressive move in order to “take advantage of the oversold conditions” in the market in mid-October, when the FTSE 100 fell into a technical correction.
Open-ended funds rarely adopt market positions greater than 100 per cent, but the strategy on the Fidelity Special Situations fund allows the manager to make use of derivatives to introduce ‘leverage’ into the fund.
The dramatic equity market falls, which saw the FTSE 100 index slip below 6,200 points on October 16, presented Mr Wright with what he saw as “a very good buying opportunity”.
He pointed to analysis from Fidelity’s head of asset allocation, Trevor Greetham, which indicated the stockmarket was at its most oversold point since the eurozone crisis in 2011.
Mr Wright said the sell-off had presented a “short-term buying opportunity”. This prompted him to take advantage of the move by buying the futures contract and “topping up” his holdings in several stocks that had been sold off.
The manager said the economic environment was not as bad as some commentators had suggested, adding that he was “positive on the market direction for the next 12 months”.
Mr Wright has been managing Fidelity Special Situations – which for nearly three decades was the flagship fund of star manager Anthony Bolton – since the start of this year after Mr Bolton’s successor, Sanjeev Shah, stepped down.
However, he has underperformed the FTSE All Share index and the IMA UK All Companies sector average return since he took on the fund, losing 7.8 per cent compared to the index’s loss of 4.5 per cent.
Speaking on a webcast last week, Mr Wright attributed the underperformance to the Special Situations fund’s overweight position in small and medium-sized stocks, which he said had been a “headwind” to performance.
So far in 2014, the FTSE 250 index, generally used as a proxy for mid-cap stocks, has fallen by 5.4 per cent, slightly more than the FTSE 100 index.
However, the FTSE Small Cap index has fallen 4.5 per cent, roughly the same as the FTSE All Share as a whole and only slightly more than the 4.4 per cent drop in the FTSE 100.
Mr Wright also attributed the fund’s underperformance to not holding FTSE 100 healthcare firms AstraZeneca and Shire, which have risen substantially in 2014 on takeover rumours.
Taking a shine to energy and materials stocks
The past few months have seen a significant change in the make-up of Alex Wright’s Fidelity Special Situations fund.
The manager invests with a value style, looking to find unloved stocks that are in a ‘recovery’ stage and holding on to those stocks while the improvement in their fortunes occurs.
But Mr Wright (pictured) had until quite recently largely stayed away from energy or materials stocks, which have found their way into many value managers’ funds in recent years following persistent share price underperformance.
While the fund remains in an underweight position relative to the market in both sectors, Mr Wright said last week that he had begun to see more opportunities there following the more recent market falls.
Mining and oil stocks in particular suffered over the summer due to the falling price of both industrial and precious metals.
Mr Wright said he had established positions in mining giant Anglo American, the world’s largest producer of platinum, diamond mining firm Petra Diamonds and Spanish energy group Repsol.
He has also topped up his holding in Royal Dutch Shell, which is the second-biggest holding in the portfolio after HSBC.
