A contrarian trust on a huge discount

Over the past month the discount on Fidelity Special Values has widened from 2% to 8%, within a whisker of its widest level over the past year (8.3%).

The move has prompted Anthony Stern, analyst at stockbroker Stifel, to label the discount as a "buying opportunity".

He notes that under the stewardship of Alex Wright, who was appointed manager in 2012, the fund has outperformed its FTSE All-Share benchmark by 48%. The trust, once run by celebrated investor Anthony Bolton, is one of our sister magazine Money Observer's Rated Funds.

"We believe this is an attractive entry point to access a contrarian manager with a proven ability to outperform," says Stern.

Contrarian style

Wright's investment style is to buy undervalued companies. He invests across the market cap spectrum, but in this portfolio he tends to favour shares outside the FTSE 100, where two-thirds of the trust is currently invested.

Financials are currently the biggest sector weighting, comprising 40% of the portfolio.

Stifel points out that Wright's contrarian style can lead to periods of underperformance, but the fund has managed to hold its head above water during what has been a volatile six months for equity markets.

Over the past six months the trust's net asset value is up 1.7%, slightly ahead of the FTSE All-Share's decline of 0.3%.

Last July, when the trust moved to a premium, Stifel switched its recommendation from positive to negative, and instead suggested switching to Wright's open-ended fund, Fidelity Special Situations.

At the start of the year the trust was trading on a small premium. But due to some profit-taking as investors become more cautious ahead of next month's European Union referendum, the trust is now trading at less than its underlying assets are worth.

How we find investment trust bargains

Each month, Money Observer highlights a couple of investment trust bargains, both online and in our monthly magazine.

We will also occasionally draw attention to investment trusts that are "too hot to handle" - those that are trading on big premiums.

Our ideas come from regular conversations with investment trust analysts, and we will try to provide a mixture of bargains, from "hidden gem" trusts with less than £200 million in assets to the more established names that typically trade on a smaller discount or premium.

For the sake of simplicity, rather than using technical measures such as the "Z score", we will identify bargains by comparing current discounts with their 12-month averages.

Only those trusts with a wider discount than their average are considered. We will also look at the overall sector and the quality of the trust, and then take a view on whether the discount looks a good opportunity.

This article was originally published by our sister magazineMoney Observer here.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.