Fidelity's Wright looks to performance turnaround on Special Values trust
Hopeful of revival amid geopolitical risks
Fidelity's Alex Wright, manager of the £727m Special Values trust, has pointed to a number of stock-specific blow-ups over the past six months and use of derivatives as reasons for the vehicle's underperformance and narrowing premium.
In the six-month period to 28 February, the investment trust reported a net asset value (NAV) total return of -6.1%, compared with the FTSE All-Share index's loss of 3.7%, with the premium on the trust narrowing from 1.5% to 0.9%.
Wright said online gaming firm GVC Holdings was the main detractor from performance, weighed down by negative regulatory news.
Elsewhere, the company's holding in Citigroup fell over earnings expectations given a worsening global economy and falling bond yields.
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Yet the manager added: "[Citigroup's] recently announced Q4 results showed profit growth that beat analysts' expectations on better-than- anticipated expense declines and loan losses.
"It also has substantial excess capital and the business remains fundamentally strong."
Political impact
Meanwhile, the uncertainty surrounding the UK's planned exit from the European Union continues to hamper returns across sectors, with defence contractor Ultra Electronics said to be "another notable detractor owing to a combination of worries surrounding Brexit, as well as Saudi Arabian and US military spending cuts".
Wright said the company also had its own accounting concerns but remained attractively valued, and the shares rose "considerably" during March.
Royal Mail's share price also fell over the period, following a profit warning over full-year earnings, pertaining to cost-savings targets.
The trust's selected use of derivatives also contributed to underperformance, with gross gearing standing at 6.9% at the end of February.
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However, in spite of the challenging six months, the company's NAV and share price total returns over three and five years stood firm against the benchmark.
Over three years, the NAV was 37.2% and the share price was 43.4% against the FTSE All-Share, which gained 30.4%. Over five years, comparable figures were 38.4% and 45% against 27.6% for the benchmark index.
In addition, investors in the trust are poised for an interim dividend of 2.10p per share, representing a 13.5% increase on last year's level.
Wright is confident short-term performance figures will improve, suggesting as US-China trade and Brexit rhetoric eases, 2019 could turn into a positive year for investors who take a leap of faith.
He added: "The deceleration in global growth is expected to weigh on UK net trade, although markets expect more accommodative monetary policies in all major economies, which should support the economic outlook.
"UK economic growth slowed in late 2018 and appears to have weakened further in early 2019.
"There is now considerable uncertainty over the medium-term outlook, although this could ease once greater clarity emerges on the US-China trade negotiations and the future path of Brexit."
