Outperforming despite a stylistic headwind

Fidelity Special Values 23 July 2019 Review
Download PDF

Fidelity Special Values

Outperforming despite a stylistic headwind

Investment trusts
UK equities

23 July 2019

Price

258.5p

Market cap

£714m

AUM

£725m

NAV*

260.5p

Discount to NAV

0.8%

*Including income. As at 19 July 2019.

Yield

2.0%

Ordinary shares in issue

276.0m

Code

FSV

Primary exchange

LSE

AIC sector

UK All Companies

Benchmark

FTSE All-Share

Share price/discount performance

Three-year performance vs index

52-week high/low

278.0p

220.0p

275.9p

219.2p

**Including income.

Gearing

Gross market gearing*

1.5%

Net market gearing*

1.0%

*As at 30 June 2019.

Analysts

Mel Jenner

+44 (0)20 3077 5720

Gavin Wood

+44 (0)20 3681 2503

Fidelity Special Values is a research client of Edison Investment Research Limited

Fidelity Special Values (FSV) has been managed by Alex Wright since September 2012. He aims to generate long-term capital growth from a diversified portfolio of primarily UK-listed companies (up to 20% of the fund may be held in companies listed overseas, and two of its top three holdings are ex-UK). The manager has a value, contrarian approach and is currently finding a broad spread of attractively valued investment opportunities across the UK market: in companies with both domestic and international businesses; in cyclical and more defensive areas; and across the market cap spectrum. Given the strength of the UK market so far this year, in spite of a deteriorating macro backdrop, Wright is more cautious on the near-term outlook for UK equities in general, but remains very positive on the opportunity set for a contrarian investor.

Long-term record of NAV outperformance versus the FTSE All-Share index

Source: Refinitiv, Edison Investment Research

The market opportunity

UK shares are currently underappreciated by both global and domestic investors. As a result, the UK market looks meaningfully undervalued versus the global and other regional markets. Increased clarity on the UK’s exit from the European Union (EU) could lead to a material re-rating of UK-listed companies.

Why consider investing in Fidelity Special Values?

Mid- and long-term outperformance versus the FTSE All-Share index.

Consistent and well-defined contrarian investment approach.

Fundamental research supported by Fidelity’s well-resourced analyst team.

Reduced, tiered fee structure with no performance fee.

FSV’s shares consistently trade close to NAV.

Active share issuance

The board seeks to ensure that FSV’s shares trade close to NAV. Since mid-2018, the trust has regularly traded at a premium and the board has been actively issuing shares. FSV’s current 0.8% discount to cum-income NAV compares with the 1.1% average premium over the last year and the 2.7% to 6.5% range of average discounts over the last three, five and 10 years. Since 2015, FSV has paid semi-annual dividends in June and January and the current yield is 2.0%.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

Fidelity Special Values’ investment objective is to achieve long-term capital growth, primarily through investment in the equities (and their related financial instruments) of UK companies that the manager believes to be undervalued or where potential has not been recognised by the market. Investments are only made in companies where the potential downside risk is understood, to limit the possibility of losses.

24 June 2019: Appointment of two independent non-executive directors – Claire Boyle (with immediate effect) and Alison McGregor (effective 1 January 2020).

1 May 2019: Interim results to 28 February 2019. NAV TR -6.1% versus benchmark TR -3.7%. Share price TR -6.7%. Proposed interim dividend of 2.10p (+13.5% year-on-year).

Forthcoming

Capital structure

Fund details

AGM

December 2019

Ongoing charges

0.92%

Group

FIL Investments International

Final results

November 2019

Net market gearing

1.0%

Manager

Alex Wright

Year end

31 August

Annual mgmt fee

Tiered: 0.85% up to £700m net assets, 0.75% thereafter

Address

Beech Gate, Millfield Lane,
Lower Kingswood, Tadworth,
Surrey KT20 6RP

Dividend paid

June, January

Performance fee

None

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 dividend payment for the year.

FSV has annually renewed authority to purchase up to 14.99% and allot up to 10% of its issued share capital.

Shareholder base (as at 30 June 2019)

Portfolio exposure by sector (as at 30 June 2019)

Top 10 holdings (as at 30 June 2019)

Portfolio weight %

Benchmark weight %

Active weight %

Company

Country

Sector

30 June 2019

30 June 2018*

30 June 2019

30 June 2018*

Royal Dutch Shell

UK

Oil & gas

5.6

6.1

9.1

(3.5)

CRH

Ireland

Industrials

4.8

4.5

0.9

3.9

Roche

Switzerland

Healthcare

4.5

N/A

0.0

4.5

Pearson

UK

Consumer services

4.2

3.5

0.3

3.9

John Laing Group

UK

Financials

4.2

N/A

0.1

4.1

Citigroup

US

Financials

3.9

4.9

0.0

3.9

Phoenix Group

UK

Financials

3.5

N/A

0.2

3.3

BP

UK

Oil & gas

3.4

2.7

4.7

(1.3)

Royal Bank of Scotland

UK

Financials

3.2

N/A

0.4

2.8

Meggitt

UK

Industrials

3.1

N/A

0.2

2.9

Top 10 (% of holdings)

40.4

36.3

Source: Fidelity Special Values, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in end-June 2018 top 10.

Market outlook: Valuations relatively attractive

UK equities are particularly unloved, with market commentators reporting historically low exposures from global allocators of capital. Uncertainty surrounding Brexit and the high concentration of the FTSE All-Share Index in the top 10 (mainly low-growth) companies (more than 35%) have led investors to look elsewhere for opportunities. Exhibit 2 (RHS) shows that UK equities, as measured by the UK Datastream Index, are trading on a forward P/E multiple of 12.4x, which is a 16.7% discount to the world market; this is significantly wider than the 5.5% five-year average. This valuation backdrop may prove an opportunity for long-term investors seeking UK equity exposure.

Exhibit 2: Market performance and valuation

Performance of UK indices (rebased to 100)

Datastream UK market forward P/E multiple vs Datastream World market

Source: Refinitiv, Edison Investment Research. Note: Valuation data as at 22 July 2019.

Fund profile: Contrarian investment approach

FSV was launched in November 1994; it is listed on the Main Market of the London Stock Exchange and is a member of the FTSE 250 Index. Since September 2012, the trust has been managed by Alex Wright, who has a contrarian investment approach, seeking undervalued companies offering the potential for positive change. The portfolio contains 80–120 companies across the market cap spectrum, of which up to 20% may be listed overseas. No single holding will make up more than 10% of the portfolio, while up to 5% of gross assets may be held in unquoted securities. Performance is benchmarked against the FTSE All-Share Index. The board believes that long-term returns can be enhanced by the prudent use of gearing; gross gearing up to 40% is allowed, but the manager employs a working range of zero to 20% net gearing. Contracts for difference (CFDs) are used to gear long exposure and to take short positions and the manager has a partial portfolio hedge (c 5%) via a FTSE 250 Index future.

The fund manager: Alex Wright

The manager’s view: Broad array of investment opportunities

Wright notes that the aggregate forward P/E of FSV’s portfolio is towards the low end of its 10-year historical range, in keeping with the overall UK market. He says that UK equities as an asset class are out of favour with both global and domestic investors, and while there is a debate about the relative valuations of companies with domestic rather than international operations, he is finding value opportunities in both camps, across both cyclical and defensive sectors. Wright believes that while many domestic businesses are trading on very modest valuations, it is very important to remain selective. FSV traditionally has an overweight exposure to this segment of the market due to the availability of smaller- and mid-cap opportunities that tend to be less well researched and can often be mispriced. The manager seeks companies with a balance sheet that is strong enough to withstand a period of earnings volatility, noting that many businesses have taken the opportunity of low interest rates to take on additional debt. Wright focuses on firms operating in structurally sound markets; while retailers have been a focus for some contrarian investors, he remains wary, believing the industry has real long-term issues and is in structural decline. The manager also seeks companies with a self-help story, where a turnaround can be achieved independently of the UK macro environment. He is cautious about the outlook for UK housebuilders, which are generating peak margins, helped by the government’s Right to Buy scheme and instead favours Irish companies Cairn and Glenveagh Properties. The Irish firms are enjoying better industry fundamentals and improving margins, as well as being reasonably valued; in addition, Fidelity’s analysts believe that Brexit fears for the Irish housebuilders are overblown.

Wright says that FSV’s investment performance can be enhanced by mergers and acquisitions (M&A), although this is not a focus of his approach. Activity tends to be a function of the level of corporate confidence, which is relatively low due to Brexit concerns. The manager says that there could be an uptick in M&A activity once there is more clarity about the UK’s departure from the EU, and notes that the trust held a position in Footasylum, which was bid for in March 2018 by JD Sports for a very large (c 80%) premium to its pre-bid share price. Although Footasylum was a modest-sized position for FSV, it delivered an outsized contribution to returns, validating the manager’s approach of having a reasonably long tail of smaller positions.

Asset allocation

Investment process: In-depth, bottom-up research

Wright has a contrarian investment style seeking unloved companies that have the potential for positive change. He selects stocks on a bottom-up basis and is able to draw on Fidelity’s well-resourced team of analysts that undertake thorough fundamental analysis, which includes meeting with company managements and their workforces, and challenging managements’ narrative. The manager also has access to a wide range of third-party research.

Investment characteristics of FSV’s holdings:

unrecognised potential for positive change – once the benefits become apparent there should be potential for significant share price appreciation; and

limited downside risk – Wright generally invests in companies with low consensus expectations, but with an attribute that will provide some support to its share price, such as an important asset or market position.

The manager can invest directly in equities, or alternatively in equity-related instruments, such as derivative contracts, warrants or convertible bonds, as well as debt instruments. FSV purchases long CFDs to achieve a cheaper gearing alternative to bank loans. Derivatives are also used to hedge equity market risks and short exposures may be taken in stocks considered to be overvalued (at end-June 2019, FSV had no short positions).

Current portfolio positioning

FSV’s portfolio typically has 80–120 holdings; at end-June 2019, the top 10 positions made up 40.4% (Exhibit 1), which was a modest increase in concentration versus 36.3% a year earlier (five positions were common to both periods). Exhibit 3 (LHS) shows the portfolio breakdown by domicile rather than by where companies are listed (Irish domiciled companies are largely listed in the UK, such as top 10 holding building materials supplier CRH), while the right-hand chart below breaks down FSV’s portfolio by market cap.

Exhibit 3: Portfolio geographic and market cap exposures at end-June 2019

Portfolio geographic exposure by company domicile

Portfolio market cap exposure – classified by FTSE index

Source: Fidelity Special Values, Edison Investment Research. Note: Figures are adjusted for gearing and index futures. Numbers subject to rounding.

Exhibit 4 shows FSV’s exposure by sector. Over the 12 months to end-June 2019, the largest changes were a reduction in the industrials weighting (-5.6pp – although this sector remains the largest active weight, +12.9pp versus the benchmark), and higher exposures in consumer goods (+4.0pp), basic materials (+2.4pp) and healthcare (+2.0pp). The manager’s unconstrained approach is illustrated by the trust’s c 55% exposure to the two largest sectors compared to their c 38% weighting in the FTSE All-Share index.

Exhibit 4: Portfolio sector exposure vs benchmark index (% unless stated)

Portfolio end-June 2019

Portfolio end-June 2018

Change
(pp)

Index end-June 2019

Active weight vs index (pp)

Trust weight/ index weight (x)

Financials

30.5

32.5

(2.0)

26.0

4.5

1.2

Industrials

24.4

29.9

(5.6)

11.5

12.9

2.1

Consumer services

10.6

10.9

(0.3)

11.5

(0.9)

0.9

Oil & gas

10.0

9.4

0.6

14.3

(4.3)

0.7

Consumer goods

7.8

3.9

4.0

13.9

(6.0)

0.6

Basic materials

6.8

4.4

2.4

8.2

(1.4)

0.8

Healthcare

6.3

4.3

2.0

8.5

(2.2)

0.7

Utilities

2.4

0.9

1.4

2.6

(0.2)

0.9

Technology

0.8

3.6

(2.8)

1.2

(0.4)

0.6

Telecommunications

0.5

0.0

0.5

2.4

(1.9)

0.2

100.0

100.0

100.0

Source: Fidelity Special Values, Edison Investment Research. Note: Figures are adjusted for gearing and index futures. Numbers subject to rounding.

Noting that portfolio turnover remains at c 60% pa, at a recent meeting Wright highlighted some of the activity in the fund over the last few months. Within banks, former top 10 holding Lloyds Banking Group has been sold, while the position in Royal Bank of Scotland Group has been increased. The manager says that Lloyds has undergone an internal improvement programme and is now a bellwether for the UK economy, with its performance driven by the level of interest rates and the strength of its mortgage operations. Wright believes that Royal Bank of Scotland is a more attractive investment opportunity, as it is at an earlier stage of improving its efficiency, which along with excess capital on its balance sheet offers a better balance of risk and reward, in his view.

Within the financials sector, FSV’s exposure to banks has declined, while the life insurance weighting has increased. The portfolio contains holdings in Aviva, Legal & General Group and Phoenix Group. All three stocks have high dividend yields, which Wright believes reflect investors’ concerns about their asset quality. However, Fidelity’s analysts researched this issue and concluded that the quality of each company’s assets is higher than generally perceived, while their businesses have also become more diversified internationally. The manager also believes that these three companies’ balance sheets are strong enough to withstand a negative Brexit outcome, and he expects dividends to be largely unaffected by any deterioration in the macro environment.

FSV has taken a new position in UK-listed Imperial Brands (the first tobacco stock that Wright has purchased for the fund). The manager says that this is an attractive stock in a defensive sector that he would have avoided in prior years on valuation grounds. However, UK tobacco companies have significantly de-rated (Imperial currently offers a c 10% dividend yield that is well covered by free cash flow). While acknowledging ongoing volume pressures for traditional cigarette manufacturers, he favours Imperial’s strong balance sheet and believes investors are not giving the company credit for its innovative new products, such as vapour brand blu. Imperial is trading on a very modest c 8x forward P/E valuation.

Performance: Above market over the mid and long term

Exhibit 5: Five-year discrete performance data

12 months ending

Share price
(%)

NAV
(%)

FTSE All-Share
(%)

FTSE 100
(%)

FTSE 250
(%)

FTSE SmallCap
(%)

30/06/15

15.7

11.2

2.6

0.2

14.5

8.0

30/06/16

(8.7)

(2.4)

2.2

3.8

(4.6)

(1.5)

30/06/17

33.2

29.2

18.1

16.9

22.2

28.5

30/06/18

16.8

9.7

9.0

8.7

10.6

8.3

30/06/19

(1.6)

(1.9)

0.6

1.6

(3.8)

(2.0)

Source: Refinitiv. Note: All % on a total return basis in pounds sterling.

In H119 (ending 28 February) FSV’s NAV and share price total returns of -6.1% and -6.7% respectively trailed the benchmark’s -3.7% total return; this was primarily due to a number of stock-specific moves, particularly evident in December 2018 during the market sell-off. Positive contributions to performance included healthcare and technology stocks, along with the holding in John Laing (infrastructure), which has a robust, diversified portfolio of projects, while on the flip side, GVC Holdings (gaming) suffered from negative regulatory news and major US bank Citigroup fell on concerns about its earnings in an environment of falling bond yields.

Exhibit 6: Investment trust performance to 30 June 2019

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Refinitiv, Edison Investment Research. Note: Three, five and 10-year performance figures annualised.

While the UK stock market delivered its worst annual performance in 2018 since the global financial crisis, as shown in Exhibit 6, domestic equities – along with FSV – rallied strongly in the first half of 2019. Over this period, the trust meaningfully outperformed its benchmark by c 3pp in both NAV and share price terms, despite its pro-cyclical bias. FSV has also had strong mid- and long-term relative performance, significantly ahead of the FTSE All-Share index over three, five and 10 years.

Over the six months to end-June 2019, the greatest contributors to the trust’s performance included Serco (public services) and C&C Group (beverages), while Pearson (publishing and education) detracted. Serco has worked through its operational issues, unlike its competitors that are still struggling, meaning the company can bid for contracts in an uncompetitive market. The manager says that Serco is an example of the ‘last-man standing’ in a troubled sector, and is now achieving higher pricing and improving returns. C&C is a cheaper and smaller peer to Diageo. It had difficulties following a US acquisition and problems in its distribution network; however, its acquisition of drinks wholesaler Matthew Clark has added significant needed distribution capacity. Pearson is one of FSV’s largest positions. Wright believes the company’s strategy is working and notes its share price is starting to recover. He says the transformation from print to digital is a long-term evolution, and the firm will likely hit bumps in the road leading to earnings volatility, but he believes that the underlying thesis remains sound and the company is way ahead of the competition in investing in a digital offering.

Exhibit 7: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to FTSE All-Share

1.7

0.3

2.9

(2.1)

18.3

19.2

37.2

NAV relative to FTSE All-Share

0.1

(0.1)

3.2

(2.4)

7.4

11.1

26.7

Price relative to FTSE 100

1.4

0.2

2.8

(3.1)

18.7

20.5

44.0

NAV relative to FTSE 100

(0.2)

(0.2)

3.0

(3.4)

7.7

12.4

32.9

Price relative to FTSE 250

2.5

0.6

2.9

2.3

17.9

14.1

6.2

NAV relative to FTSE 250

0.9

0.2

3.2

2.0

7.0

6.4

(1.9)

Price relative to FTSE SmallCap

4.8

0.6

6.3

0.5

12.3

11.6

11.7

NAV relative to FTSE SmallCap

3.2

0.2

6.6

0.2

2.0

4.1

3.1

Source: Refinitiv, Edison Investment Research. Note: Data to end-June 2019. Geometric calculation.

While relative performance was somewhat tricky during the volatile period for global stock markets in H218 (Exhibit 8), taking a longer-term perspective illustrates FSV’s record of outperformance versus the broader UK market.

Exhibit 8: NAV total return performance relative to benchmark over three years

Source: Refinitiv, Edison Investment Research

Valuation: Regularly trading at a premium

Exhibit 9: Share price premium/discount to NAV (including income) over three years (%)

Source: Refinitiv, Edison Investment Research

The board seeks to maintain FSV’s share price at a single-digit discount or a small premium to NAV (in normal market conditions). Renewed annually, it has authority to purchase up to 14.99% and allot up to 10% of FSV’s issued share capital. Historically, a relatively modest level of buybacks has been maintained, but allotments have been prevalent over the last two years (Exhibit 1). The board notes that issuing shares when they are trading at a premium sufficiently high enough to NAV to avoid dilution increases the size of the company, improves liquidity and spreads costs over a larger asset base. In H119, c 5.9m shares (c 2.2% of the end-FY18 share base) were issued raising c £14.9m.

Having traded at a discount of more than 10% three years ago, FSV’s shares have re-rated, and are currently trading at a 0.8% discount to cum-income NAV. This compares with an average premium of 1.1% over the last 12 months and average discounts of 2.7%, 3.8% and 6.5% over the last three, five and 10 years respectively.

Capital structure and fees

FSV is a conventional investment trust with one class of share; there are currently 276.0m ordinary shares in issue. The manager employs net gearing in a range of 0% to 20% in normal market conditions (1.0% at end-June 2019) via CFDs (see page 3). Gearing was increased following the Q418 market volatility, but has been reduced in recent months. While Wright says the valuation backdrop is supportive and he has a diverse opportunity set, the UK market has rallied strongly so far in 2019, while the macro backdrop has deteriorated, so he considers it prudent for the trust to have a minimal level of debt.

Since 1 September 2018, FSV has had a tiered management fee structure; 0.85% of NAV up to £700m and 0.75% of NAV above this level (previously a flat 0.875% of NAV). In FY18, ongoing charges were 1.04%, and are estimated at 0.92% for FY19.

The trust is subject to a three-year continuation vote; the next is due at the AGM in December 2019.

Dividend policy and record

The trust aims to generate long-term capital growth rather than income, so the level of dividends will vary depending on the stocks held in the portfolio. However, annual distributions have grown every year since FY09 (the FY08 payment was boosted by a one-off VAT repayment); over the last five years, the dividend has compounded at a rate of 9.0% pa.

Historically, FSV paid annual dividends, but starting in 2015, dividends have been paid twice a year in June and January in order to smooth the payment stream. The total FY18 distribution of 5.0p was 8.7% higher year-on-year and was 1.14x covered. The board announced a H119 interim dividend of 2.10p per share (0.8x covered), which was 13.5% higher than the H118 1.85p per share payment. Based on its current share price, FSV offers a 2.0% dividend yield.

Peer group comparison

FSV is a member of the 13-strong AIC UK All Companies sector; with its peers following a variety of investment mandates. Its NAV total returns are above the sector average over all periods shown, ranking fifth (3.2pp higher than the mean), sixth (+7.5pp) and fourth (+16.2pp) over one, three and five years respectively. FSV ranks seventh out of 12 funds over 10 years (+11.7pp). It currently has the second lowest discount in the peer group, while it has an ongoing charge that is modestly above the mean (like the majority of its peers, no performance fee is payable), and a lower than average level of net gearing. Befitting its focus on capital growth rather than income, FSV has a dividend yield that is somewhat below average, although still at an appreciable level.

Exhibit 10: AIC UK All Companies sector as at 22 July 2019*

% unless stated

Market
cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount
(cum-fair)

Ongoing charge

Perf.
fee

Net
gearing

Dividend
yield

Fidelity Special Values

713.5

(3.2)

34.0

52.4

230.9

(1.1)

0.9

No

101

2.0

Artemis Alpha Trust

116.2

(13.0)

25.5

10.7

100.8

(19.3)

0.9

No

100

1.8

Aurora

125.3

(8.9)

34.9

8.5

63.4

(0.2)

0.4

Yes

100

2.1

Baillie Gifford UK Growth

281.5

(3.7)

21.3

26.6

181.2

(4.5)

0.5

No

100

2.4

Henderson Opportunities

76.0

(9.6)

37.1

38.8

319.9

(19.8)

0.8

Yes

113

2.2

Independent

281.2

(17.0)

59.3

99.8

315.7

(7.2)

0.2

No

100

2.0

Invesco Perp Select UK Equity

57.8

(2.4)

16.9

40.3

244.5

(2.2)

0.8

Yes

101

3.8

JPMorgan Mid Cap

252.0

(5.1)

37.3

66.4

324.3

(12.4)

0.8

No

105

2.6

Jupiter UK Growth

48.2

(11.1)

10.6

8.0

114.9

(2.8)

1.2

Yes

117

2.4

Keystone

217.0

(2.3)

10.3

24.0

177.4

(14.5)

0.5

Yes

103

3.5

Mercantile

1,604.8

(3.1)

39.8

58.5

265.5

(11.6)

0.5

No

104

3.1

Sanditon Investment Trust

40.0

(0.0)

(12.5)

(6.5)

(11.3)

1.3

Yes

100

0.6

Schroder UK Mid Cap

182.5

(4.4)

30.4

42.9

291.4

(17.5)

0.9

No

104

3.2

Average (13 funds)

307.4

(6.4)

26.5

36.2

219.2

(9.6)

0.8

104

2.4

Trust rank in sector

2

5

6

4

7

2

3

7

10

Source: Morningstar, Edison Investment Research. Note: *Performance to 19 July 2019 based on ex-par NAV. TR=total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

The board

There are currently six non-executive directors on FSV’s board, five of whom are independent of the manager. Chairman Andy Irvine was appointed as a director on 15 April 2010 and assumed his current role on 5 July 2016. The senior independent director (since 5 July 2016) and chairman of the audit committee (since 26 October 2010) is Sharon Brown, who joined the board on 15 April 2010. Nigel Foster was appointed on 1 September 2015 and Dean Buckley on 3 November the same year. Nicky McCabe joined the board on 9 December 2004; due to the length of her tenure and her previous roles at Fidelity (including as head of investment trusts) she is considered to be a non-independent director.

On 24 June 2019, the board announced the appointment of two additional independent, non-executive directors, Claire Boyle (with immediate effect) and Alison McGregor (with effect from 1 January 2020).

Boyle is a qualified chartered accountant with more than 17 years’ experience working in finance and investment management roles, including at Oxburgh Partners, American Express Asset Management and Robert Fleming Investment Management, and is a non-executive director of Aberdeen Japan Investment Trust. She will become chairman of the audit committee when Brown steps down from the board at the AGM on 12 December 2019 following a nine-year tenure.

McGregor is a non-executive director of the Confederation of British Industry (CBI), ScottishPower Energy Networks, Beatson Cancer Charity, and is an advisor to the board at the Adam Smith Business School at Glasgow University and co-chair of the Scottish Apprenticeship Advisory Board.

General disclaimer and copyright

This report has been commissioned by Fidelity Special Values and prepared and issued by Edison, in consideration of a fee payable by Fidelity Special Values. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Fidelity Special Values and prepared and issued by Edison, in consideration of a fee payable by Fidelity Special Values. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues