Partner Insight: Wright illustrates how the Fidelity Special Situations fund works in practice by referencing the fund's significant investment in Irish housebuilder Cairn Homes, which is focused on building homes in Dublin and its surrounding suburbs.
The Fidelity Special Situations Fund was launched close to 40 years ago to focus on investing in UK companies that are continually overlooked by other investors but offer the potential for recovery. Portfolio Manager Alex Wright reveals how he has honed the value focus of the fund since he took over in 2014, using a ‘three-stage' investment process to frame his assessment and analysis of both potential and current investments.
It is this same process that helped him identify one of his most recent stock successes, Cairn Homes. He first became aware of the Irish housebuilder over four years ago, ahead of the group's IPO plans.
"We could see that Cairn Homes had an extremely small housebuilding business in Ireland and what it was looking to do was effectively scale that up by buying more land. The reason I thought this attractive was because it was a stock in a very out-of-favour space," he says. "At the time, there was still a lot of negativity around Irish construction, housing and financials as a whole. But we thought it was a great opportunity because there was essentially no competition as they had all gone bust. Cairn was the only company with plans to build homes and demand for housing was beginning to come back."
Wright's initial analysis showed Cairn Homes was an incredibly rare stock in 2014 as it combined two things that no other housebuilder in the region had: expertise in building houses and also, via its 2015 IPO, capital to buy land and expand its operations. Crucially, Wright was able to identify this opportunity earlier than other investors - in this case after one of Fidelity's analysts visited the company and its sites in Ireland ahead of its listing. This meant Wright first became aware of the company's potential around six months before it listed which allowed his team time to start the due diligence work early.
Having invested in Cairn Homes at IPO, Wright waited for the company to deliver on its strategy. It wasn't until the end of 2016, more than two years after Wright's initial investment that the company began to see strong demand from customers and the market become comfortable with the fact that Cairn could scale up as a housebuilder. The company built 420 houses last year, and is on track to build 1,200 by 2019.
For now, Cairn Homes remains at stage two in Wright's investment process as he sees further upside potential in the stock as it continues to deliver operationally.
Click here to read more about Wright's portfolio allocation process, and how it has helped him to deliver long-term returns for investors.