Buy, hold or sell: Alex Wright

Alex Wright's approach to the Fidelity Special Values trust is a contrarian one: he looks for companies that the market has prematurely cast aside or failed to give proper consideration because of some other extenuating factor, such as an overriding negative perception of a sector or particular company.

"Basically, we make money by picking out where we think the market's got it wrong and discounted good franchises because of some obvious issues," he says.

One of the biggest examples of this is financials, which make up about 40% of the fund's assets. Although banks remain broadly out of favour, Wright points to the strengthening of bank balance sheets through higher capital ratios and the exit of some foreign banks from the UK market as two good reasons to be hopeful for the sector.


In line with his philosophy of looking for stocks that have been mistakenly undervalued by the market, Wright bought camera accessory manufacturer Vitec in summer 2014 at about 580p a share. The share price has since risen to 624p, but Wright believes Vitec's market remains depressed following two waves of innovation from which it benefited – consumer migration from analogue to digital, and a movement in the professional photography sector from standard definition to high definition equipment.

"Both of those things are now quite a long way [behind us], so we've seen the big negative effect as that [positive] adoption wave starts to drop out of the numbers, but now we've started to see stronger consumer sentiment, particularly in the US, which is Vitec's biggest market," says Wright.

"Photographic studios now have a lot more money because advertising markets have picked up, and we're starting to see reinvestment happen."

He adds that Vitec has a market share of 60-70%, making the prospect of recovery in the sector a boost for the shares.


Wright tends to hold shares for an average of about 18 months, enough time for most anticipated market corrections to manifest themselves. His holding in cruise giant Carnival has already lasted a year and a half, but he isn't quite ready to let go just yet.

The cruise sector in general staggered under expensive oil prices and weathered a lapse in consumer demand in the wake of the financial crisis, but Carnival in particular bore the brunt of two public disasters: the fire on the Triumph, owned by Carnival, and shortly after that the wreck of the Costa Concordia, owned by Carnival subsidiary Costa Cruise.

Despite making a 'terrible' 5% return on capital so far, Wright believes the potential is huge, especially given Carnival's 40% market share.

"We do see a recovering consumer picture, especially among US consumers, who are the key users of cruises. Interestingly, we are starting to see Asian customers - particularly Chinese - starting to take cruises, which is another new form of demand that we haven't seen before."

Recent low oil prices will likely also have a positive effect on cruise profits.


Although the Scottish energy company was already held by the SSE fund, Wright increased his holding in the fourth quarter of 2013 - after Labour leader Ed Miliband proposed freezing energy prices if his party wins the general election this May, precipitating a share price fall of 20% to £13.

Wright felt the fall was 'unjustified' given that residential energy supply accounts for only about 15% of SSE's business. The firm also owns the Scottish grid infrastructure, as well as a number of wind farms and gas and coal generation plants, among other assets.

"About 60% of earnings are regulated, so those are effectively fixed returns which the government has set for the next seven years. Even if we saw the profits disappear from that [residential] side of the business, I thought the rest of the business looked very strong," he comments.

However, he sold most of his holding in the fourth quarter of 2014 at a share price of about £16, and the rest in early January 2015 at £15. "The reason I sold out of it is that in the last year the stock was up about 25%, so the valuation now looks a lot less compelling," he says.

"There's been a reduction in future earnings because we've seen reductions in UK electricity wholesale prices and gas prices, due to [falling] commodity markets."

This feature was written for our sister publication Money Observer