Fidelity Special Situations fund manager Sanjeev Shah's use of derivatives to counter the recent downturn has helped deliver relative outperformance over sector peers and the market so far this year.
Morningstar analysis revealed Shah, like preceding Special Situations manager Anthony Bolton, has used UCITS III powers to hedge against the equity market downturn and to short on securities.
Fidelity’s flagship UK vehicle may be down 7.4% in 2008 (to 2 September), but the fund has outperformed the Morningstar UK Equity Mid Cap category by 4.3% this year and is 2.9% up on the FTSE 250 (ex investment trust) index.
Compared to peers over three months, the fund is down just 1.2% against the 5.7% decline for the IMA UK All Companies sector.
Morningstar revealed the UCITS III manoeuvres cut the fund's net equity exposure in the first quarter, contributing roughly half the Q1 outperformance versus the benchmark.
“As that shows, such defensive capabilities, which can also include shorts on individual stocks, can add significant value if used well,” Morningstar UK research head Christopher Traulsen says.
At 30 June, the fund was 26.6% invested in financials, with Shah taking new positions in Royal Bank of Scotland and UBS, while boosting holdings in Alliance & Leicester, HBOS, Friends Provident and Provident Financial. Unlike many current managers, Shah has avoided any exposure to the mining sector.
“Thus far, Shah's work here is very much what we would have expected from him, and in keeping with the fund's history,” Traulsen says.
“Although the fund's appeal is clearly below where it was with Bolton at the helm, we believe it remains a step above the norm for UK equity funds.”IFAonline
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