Fidelity Special Values Celebrating 25-year anniversary Investment trusts UK equities 28 November 2019 Fidelity Special Values (FSV), launched in November 1994, is celebrating its 25-year anniversary. Manager Alex Wright has a contrarian investment Price 271.5p style, aiming to generate long-term capital growth from a diversified Market cap £763m portfolio of primarily UK equities (up to 20% of the fund may be held in AUM £804m companies listed overseas). The manager seeks undervalued companies with the potential for positive change. He says the UK market is relatively NAV* 265.4p Premium to NAV 2.3% attractively valued versus global stocks and, in an environment of *Including income. As at 26 November 2019. softening company fundamentals, he is finding opportunities in more Yield 2.1% defensive businesses. FSV has a strong investment performance track Ordinary shares in issue 280.9m record; its NAV total returns are ahead of the FTSE All-Share index over Code FSV the last three, five and 10 years. Although the last 12 months have proved Primary exchange LSE more challenging, Wright has confidence in the trust’s future prospects. AIC sector UK All Companies Benchmark FTSE All-Share FSV’s 25th anniversary Share price/discount performance 290 6 Premium/(discount) Premium/(discount) (% ) 270 3 250 0 Share price 230 -3 210 -6 Jul-19 Oct-18 Apr-19 Oct-19 Jan-19 Jun-19 Feb-19 Mar-19 Nov-18 Dec-18 Aug-19 Sep-19 May-19 FSV Equity Discount Three-year performance vs index 150 140 130 120 Source: Fidelity 110 100 The market opportunity 90 Jul-17 Jul-18 Jul-19 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Jan-17 Jan-18 Jan-19 UK shares are relatively attractively valued compared with the global market. FSV Equity FTSE All-Share Political uncertainty since the June 2016 EU referendum has deterred both 52-week high/low 271.5p 220.0p domestic and international investors; however, there is potential for improved NAV** high/low 265.4p 219.2p sentiment towards the UK market once there is increased clarity in the political **Including income. backdrop – the upcoming general election could be an important first step. Gearing Why consider investing in Fidelity Special Values? Gross market gearing* 0.0% Net market gearing* 0.0% Consistently applied, contrarian investment process. *As at 31 October 2019. Manager is able to draw on the broad resources of Fidelity’s analyst team. Analysts Annual NAV and share price total returns above 10% over the last 10 years. Mel Jenner +44 (0)20 3077 5720 Mid- and long-term outperformance versus the benchmark. Sarah Godfrey +44 (0)20 3681 2519 Lower ongoing charges, helped by reduced investment management fee. [email protected] Edison profile page Regularly trading at a premium FSV’s current 2.3% premium to cum-income NAV compares with an average Fidelity Special Values is a research premium of 1.0% over the last 12 months and average discounts of 1.6%, 3.3% client of Edison Investment Research and 6.2% over the last three, five and 10 years. The board actively issues shares in Limited order to manage the premium. FSV’s regular annual dividend has increased in each of the last 10 consecutive years; it currently offers a 2.1% yield. Exhibit 1: Trust at a glance Investment objective and fund background Recent developments Fidelity Special Values’ investment objective is to achieve long-term capital 1 November 2019: 12-month results to 31 August 2019. NAV TR -4.9% versus growth, primarily through investment in the equities (and their related financial benchmark TR +0.4%. Share price TR -6.9%. Proposed final dividend of instruments) of UK companies that the manager believes to be undervalued or 3.65p (+15.9% year-on-year) and special dividend of 1.50p. where potential has not been recognised by the market. Investments are only 24 June 2019: appointment of two independent non-executive directors – made in companies where the potential downside risk is understood, to limit the Claire Boyle (with immediate effect) and Alison McGregor (effective 1 January possibility of losses. 2020). Forthcoming Capital structure Fund details AGM 12 December 2019 Ongoing charges 0.92% Group FIL Investments International Interim results May 2020 Net market gearing 0.0% Manager Alex Wright Year end 31 August Annual mgmt fee Tiered: 0.85% up to £700m net Address Beech Gate, Millfield Lane, assets, 0.75% thereafter Lower Kingswood, Tadworth, Dividend paid June, January Performance fee None Surrey KT20 6RP Launch date 17 November 1994 Trust life Indefinite (subject to vote) Phone 01732 361144 Continuation vote Three-yearly (next 2019) Loan facilities None – CFDs used (see page 3) Website www.fidelity.co.uk/specialvalues Dividend policy and history (financial years) Share buyback policy and history (financial years) Since 2015, FSV has paid interim and final dividends, in order to smooth the FSV has annually renewed authority to purchase up to 14.99% and allot up to dividend payment for the year. 10% of its issued share capital. 8.0 25 7.0 1.50 20 6.0 5.0 15 DPS (p) DPS 4.0 10 3.0 5.75 4.60 5.00 2.0 Costs/proceeds(£m) 3.30 3.35 3.70 5 1.0 0.0 0 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY14 FY15 FY16 FY17 FY18 FY19 Full year dividend payment Special dividends Repurchases Allotments Shareholder base (as at 31 October 2019) Portfolio exposure by sector (as at 31 October 2019) Fidelity platform investors (24.9%) Financials (29.9%) Rathbones (9.2%) Industrials (25.7%) Hargreaves Lansdown (6.4%) Consumer goods (9.8%) Interactive Investor (5.5%) Oil & gas (9.7%) Investec Wealth & Invt (4.6%) Healthcare (8.1%) Individuals (3.4%) Consumer services (6.7%) Charles Stanley (3.2%) Basic materials (6.0%) Brewin Dolphin (3.1%) Utilities (3.7%) Other (39.7%) Telecommunications (0.4%) Top 10 holdings (as at 31 October 2019) Portfolio weight % Benchmark weight % Active weight % Company Country Sector 31 Oct 2019 31 Oct 2018* 31 October 2019 31 October 2018 CRH Ireland Industrials 5.5 4.1 1.0 4.5 Roche Switzerland Healthcare 5.3 3.7 0.0 5.3 Royal Dutch Shell UK Oil & gas 4.0 4.6 7.9 (3.9) BP UK Oil & gas 3.9 4.0 4.3 (0.4) John Laing Group UK Financials 3.9 3.1 0.1 3.8 Phoenix Group UK Financials 3.4 N/A 0.2 3.2 Meggitt UK Industrials 3.3 N/A 0.2 3.1 C&C Group UK Consumer goods 3.1 N/A 0.0** 3.1 Serco Group UK Industrials 3.1 N/A 0.1 3.0 Legal & General Group UK Financials 2.9 N/A 0.7 2.2 Top 10 (% of holdings) 38.4 38.3 Source: FSV, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in end-October 2018 top 10. **Moved to the London Stock Exchange in October 2019, not in the index until the next quarterly review. Fidelity Special Values | 28 November 2019 2 Market outlook: Potential for a re-rating UK equities are out of favour with both international and domestic investors. While global growth is slowing, political uncertainty in the UK is also having a negative effect on spending and sentiment at both the corporate and consumer levels. In terms of valuation, the Datastream UK index is trading on a forward P/E multiple of 12.8x, which is a 17.3% discount to the world market, significantly wider than the 6.3% average discount over the last five years. With UK shares trading at such attractive relative valuations, any clarity on the domestic political situation could lead to a re-rating of the UK market. This may happen sooner rather than later given the upcoming UK general election on 12 December. Exhibit 2: Market performance and valuation Performance of UK indices (rebased to 100) Datastream UK market forward P/E multiple vs Datastream World market 160 16 10% 15 5% 140 Premium/(discount) 14 0% 120 13 -5% 12 -10% 100 ForwP/E(x) ard 11 -15% 80 10 -20% Nov-14 Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 May-15 May-16 May-17 May-18 May-19 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 May-15 May-16 May-17 May-18 May-19 FTSE 100 FTSE 250 FTSE SmallCap UK market P/E P/E premium/(discount) to World index Source: Refinitiv, Edison Investment Research. Note: Valuation data as at 27 November 2019. Fund profile: Actively managed with contrarian style FSV was launched in November 1994 and has been managed by Alex Wright since September 2012. He aims to deliver long-term capital growth from a diversified portfolio of primarily UK equities. Wright has a contrarian investment style, seeking undervalued companies with the potential for positive change, rather than just those firms trading on low valuation multiples; he invests across the market cap spectrum. FSV invests in 80–120 companies, and up to 20% of the portfolio may be in overseas-listed firms. At the time of investment, no single stock will make up more than 10% of the portfolio, while up to 5% of gross assets may be held in unquoted securities. The trust’s investment performance is benchmarked against the FTSE All-Share Index. In addition to equities, the manager may also invest in other transferable securities, collective investment schemes, money market instruments, cash and deposits.