Value investor names the bargain banks he’s backing

TL;DR

Fidelity special values manager Alex Wright discusses his value investing approach, focusing on buying undervalued companies with potential for recovery and realizing their fair value over time.

Transcript

hello and welcome to our latest Insider interview today in the studio I have with me Alex Wright for manager of the Fidelity special values Investment Trust Alex thanks for coming in today thanks for having me so Alex you're a value investor you like to buy companies trading on cheap valuations that have good recovery potential could you talk us th... Read More

Key Insights

• 🧚 Value investing involves buying undervalued stocks that have the potential for recovery or realizing their fair value over time.
• 🔸 Fidelity special values Investment Trust focuses on mid and small cap companies in the UK market to access a broader range of investment opportunities.
• ❓ Allied Irish Bank (AIB) is an example of an undervalued company with significant growth potential due to favorable conditions in the Irish banking market.
• 🛻 The trust's portfolio is diversified across sectors, with a focus on bottom-up stock picking for generating performance.
• 👂 Overseas exposure in sectors like healthcare provides access to companies with attractive valuations compared to UK-listed equivalents.
• 🙈 The trust is underweight in the resources sector, as they believe metal prices, particularly iron ore and thermal coal, are overvalued.
• 🌱 Recent portfolio activity includes buying into companies like Cenal, which presented an interesting opportunity with its planned split-up and potential for mergers and acquisitions (M&A).

Questions & Answers

Q: What is Alex Wright's value investing approach?

Wright's value investing approach involves identifying and purchasing undervalued companies with the potential for recovery or benefiting from industry changes. He focuses on realizing the fair value of these investments over time.

Q: Why does the Fidelity special values Investment Trust prefer mid and small cap companies in the UK market?

The trust prefers mid and small cap companies because the UK market's top end is concentrated, offering limited investing options. By focusing on mid and small caps, the trust can access a larger investable universe and potentially find more undervalued opportunities.

Q: Can you highlight some companies trading on low valuations that Alex Wright believes are unjustly cheap?

One such company is Allied Irish Bank (AIB), which is priced like a UK bank but has seen a doubling of its earnings over the past year due to the exit of some competitors in Ireland. Wright believes that AIB still has more growth potential due to favorable economic and political conditions in Ireland.

Q: Apart from banks, which sectors have significant overseas exposure in the trust's portfolio?

The trust uses overseas exposure for sectors with UK analogies, such as healthcare. They hold a big position in Rash, a global healthcare company, which provides exposure similar to UK-listed companies like GSK or AstraZeneca but with more attractive valuations.

Summary & Key Takeaways

• Alex Wright follows a value contrarian approach, investing in stocks that are currently undervalued in the market but have the potential for recovery or benefit from industry changes.

• The Fidelity special values Investment Trust has a preference for mid and small cap companies in the UK market, providing a wider range of investment opportunities compared to the concentrated large-cap market.

• The trust holds a diversified portfolio, with a significant allocation to banks, including Allied Irish Bank, which has shown strong growth in earnings due to favorable conditions in the Irish banking market.