Sanjeev Shah shifts into defensive growth stocks

Fidelity Special Situations manager Sanjeev Shah is moving his £2.4bn fund into ‘defensive growth’ stocks due to fears markets will correct in 2013.

The manager is buying in areas such as pharmaceuticals and telecommunications and has weighted the fund 7-8 per cent in ‘short’ bets - that shares will fall in value - in more economically sensitive areas such as chemicals, mining and oil.

The trades mark a departure for the manager, who has maintained a relatively pro-cyclical portfolio for much of the past five years since he took over the fund from Anthony Bolton.

Article continues after advert

This bullish approach, including large stakes in UK banks, had led to frequent spells of underperformance on the fund until markets began to rally last year, giving the Fidelity fund a major boost.

The Special Situations fund was a top-decile performer in the IMA UK All Companies sector in the past year, returning 29.7 per cent according to FE Analytics, in part thanks to having HSBC and Lloyds Banking Group as its top-two holdings.

The manager said: “In the short term the markets will continue to climb the wall of worry.

“But there is likely to be a significant correction in markets this year. It will be a long and drawn-out period of consolidation rather than the sharp corrections we have seen in the past few years.

“It will present possibly the last chance to buy into equities at cheap valuations; a final big buying opportunity.”

But the manager is not engaging purely in ‘defensive’ trades. He is retaining his pro-cyclical theme with trades into consumer cyclicals shares, and he is also remaining invested in the banking sector.

He is hedging his bet with individual ‘short’ bets instead.

Mr Shah said: “To protect the downside risk of the fund in a correction, I could short the index or buy a put option on the index.

“It is way too early for such a move yet but I’m considering it more and more as the market climbs.”

The fund already has short positions making up between 7 per cent and 8 per cent of the portfolio, comprising around 15 stocks in sectors such as chemicals, mining, oil services and healthcare, generally late-cycle industrial stocks.