FidelitySep 25 2018

Fidelity’s Alex Wright looks to UK large caps

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Fidelity’s Alex Wright looks to UK large caps

Alex Wright, who runs the £3.2bn Fidelity Special Situations fund, is ignoring the prevailing wisdom and investing in UK large cap shares.

Mr Wright, whose fund has returned 42 per cent over the past three years, compared with 33 per cent for the average fund in the IA UK All Companies sector in the same time period.

He said: "A recurring question in recent client meetings has been whether I am finding opportunities among apparently unloved UK small and mid-caps. This reflects a strong consensus belief, reinforced by fund manager surveys and press coverage, that UK mid and small caps are deeply out of favour and under-owned compared to their larger and more international cousins in the FTSE 100."

But Mr Wright said small and mid-cap shares had actually outperformed the FTSE 100 since the Brexit vote despite the popular narrative being that the large caps have performed better because they earn a greater proportion of revenues from overseas and were less impacted by the slower growth rate of the UK economy.

As a result Mr Wright said he saw large caps as an opportunity and had been investing more capital into three areas in particular: banks, oil companies and defensive shares such as tobacco companies.

Sheridan Admans, multi manager fund manager at The Share Centre said the chance that the pessimism surrounding UK equities could prove unfounded justifies putting more money into the asset class, and he had been increasing his exposure to the UK market.

He said: "You think of the UK, you think of Brexit and the debate that is dominating agendas is therefore hard to ignore. Combined with UK politics in general, the impact had on the country’s position on the world stage is one of great significance.

"This has seen sentiment towards investing in UK equities sink with outflows from active UK managers reaching into billions over the course of the last few years. The UK has become the most unloved developed market to invest in but sentiment towards the UK has become so bad that I am now of the view that the upside potential outweighs the pessimism.

"Yes, Brexit is likely to continue to be a drag on investor confidence in the interim however, the economic situation has been better and more resilient than many expected. Indeed, in the Spring Statement the chancellor forecast a small current surplus is expected. A surplus which should leave some room to borrow to fund capital investment rather than meet day to day spending needs."

A fund he is buying for his clients eager to gain exposure to the UK is the Crux UK Special Situations fund run by Richard Penny.   

Alan Steel, who runs Alan Steel Asset Management in Scotland, said he had been buying more UK equity funds for clients, despite the political uncertainty. He said: "Given the herd is usually wrong we see it as a buying opportunity. Reminds me of the late 1990s when the same thing happened. Just watch."

david.thorpe@ft.com