The £2.8bn Fidelity Special Situations fund has taken advantage of Sports Direct’s fall in share price following high-profile corporate governance issues, as well the weak market for retailers generally and FX impacts following the Brexit vote.
Fund manager Alex Wright reckons the company is “past the point of maximum uncertainty” when it comes to its corporate governance woes.
As a result he says he has added “dramatically” to the sports retailer, which he had owned historically, but not for a number years as he believed the market was pricing it too highly.
Wright first initiated his position in Sports Direct in Q1, but has been adding to it following the UK’s vote to leave the European Union.
“Clearly the stock sold off very dramatically over the last 12 months and that’s because there’s been a number of problems there.”
“The first reason for that is a generally weak market for clothing sales as a whole in the UK. Obviously also the FX issues, so most of their purchases are in dollars and clearly post Brexit those have become more expensive.
“Then also the very high profile negative headlines coming out about how they treat their employees, particularly those they don’t directly employ at the warehouse in Shirebrook, and also the issues around corporate governance, lack of accountability and dialogue with shareholders.”
But Wright points to last week’s resignation of chief executive Dave Forsey as an example of the company making efforts to address its corporate governance issues.
Additionally, the company has launched an independent review into the way it run and its working practices and it has established an employee representative on the board.
Wright adds that profits will improve as the company begins to pass on FX effects in prices.
Post Brexit, Wright has also added to BT, which has seen its stock fall on pension deficit fears.
Around 60 per cent of earnings in the fund are non-UK, which he says is largely has it has been over the last 12 months.