Fidelity’s Wright: Why the FTSE 100 is a value opportunity

Fidelity Worldwide Investment fund manager Alex Wright is finding the FTSE 100 good value as he continues to follow his contrarian approach to investing.

Wright recently took control of the £2.8bn Fidelity Special Situations fund from Sanjeev Shah who quit fund management in September 2013.

Previously co-managing the £361m Fidelity UK Smaller Companies fund and £506m Fidelity Special Values fund, Wright likes having a wider selection of equities to choose from.

Speaking recently at the Fidelity Worldwide Investments Live Perspectives conference, Wright said: “It is fair to say I have been finding more ideas in this part of the market. The FTSE 100 is showing up as the part of the market with the highest discount.

“A lot of my previous success came from having a small and mid cap bias and I will continue to have large holdings in small and mid caps.

“Valuations as a whole have not been as attractive recently in this part of the market but there is greater choice.”

Capital Economics chief markets economist John Higgins recently highlighted that the FTSE 100 has underperformed its peers and tipped it to outperform the S&P 500 in 2014. Capital Economics says the FTSE could end the year as high as 7,500.

Elsewhere, despite the lack of attractive small/mid cap valuations, Wright is not fazed and will use shorting to exploit these opportunities.

On the Special Sits fund, Wright has more shorting support and adds that the prospect of this “excites” him.

Wright sees opportunities in a range of sectors: “There is clearly a lot of political noise around big business. What is interesting is how housebuilders have had incredibly favourable regulatory environment, best environment they could dream of.

“The chance of this being cut off before the election is relatively low but we have been reducing this because it is incredibly positive.”

In terms of negative political interference, Wright is increasing exposure to utilities and banking as he looks to make a contrarian play.

Wright has increased exposure in Lloyds as enabling banks being able to lend and boost the economy could be a political vote winner.

Within utilities, Wright has initiated a position in SSE despite the fact that political noise around potential price freezes could “rumble on.”

Wright said: “The problem politicians have is with the retail supply business which is very small. So it is difficult to see profitability being hit.

“Lack of capacity requires new investment to happen which will not happen if political rhetoric continues at this current level. The reality of this is if we had rolling power outages would make politicians realise that they could lose a lot of grace with voters if this happened.”

Wright has different opinions of IPOs and M&A.

Wright said: “IPOs are something I rarely do because what I look for are unloved companies. And clearly in these situations investment banks are paid to make sure these misperceptions do not occur.

“With M&A, this has been very positive for my strategy in the past five years. However we have seen a slowdown for these because valuations moved up quite dramatically in short term.

“But there is a large amount of capital out there looking for a home and an increase in corporate confidence. I think we may actually see more big M&A deals being done in 2014. Overall, M&A will hopefully allow me to be a beneficiary.”