Fidelity Special Values hit as “defensive” stocks struggle with COVID. For the year ended 31 August 2020, Fidelity Special Values reports an NAV return of -18.5% and a return to shareholders of -25.4%. This compares to -12.6% for the wider UK market. The dividend was increased marginally to 5.8p from 5.75p, some of that is payable from reserves as the revenue for the year was 4.81p.
Fee cut
The board has agreed a revised fee with effect from 1 January 2021. The current tiered fee structure, which is 0.85% on the first £700m of net assets reducing to 0.75% on amounts over £700m, will be replaced by a single fee of 0.60% of net assets.
Extract from the manager’s report
“The bulk of the underperformance took place during the sharp market sell-off that occurred in late February/March 2020 amid increasing concerns over the rapid spread of COVID-19 cases across the world and the impact on economic and corporate activity, company earnings and dividends.
While we took decisive actions early on by selling out of airlines and a few small holdings with levered balance sheets (which looked the most vulnerable), and subsequently reducing exposure to oil and gas stocks, it is fair to say we did not foresee such drastic containment measures and the resulting impact on individual businesses and industries. The Company went into the crisis defensively positioned, with many key holdings expected to be resilient in a downturn. However, the unprecedented nature of the crisis meant that entire industries/businesses had to shut down, a very different backdrop to normal recessions. A number of our top holdings, which would normally fare relatively well in a downturn, were disproportionally affected by the virus containment measures. For instance, aerospace equipment supplier, Meggitt, was the largest detractor (having reported strong results in late February). One of the attractive characteristics of a business like Meggitt is that, irrespective of airline profitability, if planes fly, Meggitt gets maintenance business. In this particular crisis, planes stopped flying altogether which had significant near term impact on the business. Similarly, alcoholic beverage distributor, C&C Group, was affected by pub and restaurant closures because of the lockdown. The stock should have proved defensive, but the unprecedented circumstances meant that it significantly underperformed. Both positions were reduced given the near term headwinds and expected reduced activity levels beyond the lockdown. While the Company has outperformed as market sentiment has improved and some of our holdings showcased their resilience by surprising the market with stronger-than-expected results, this has so far not been sufficient to make up for the earlier underperformance.”
FSV : Fidelity Special Values hit as “defensive” stocks struggle with COVID