Shares to buy, hold and sell: Alex Wright
Alex Wright's contrarian investments have taken the Fidelity UK Smaller Companies fund to third place in its sector by returning 29.5% over the past year. In September, Wright took over Fidelity’s Special Values investment trust.
Here are the latest stocks he has bought and sold, and the one he’s holding on to.
A Creston shareholding was one of the first purchases Alex Wright made for the Special Values investment trust. The company is a small media agency that operates across public relations, communications and insight.
Wright first bought shares in the summer of 2012 but added to his holding following a profit warning, judging the company as undervalued compared with its peers. He says: "I like the media sector as a whole; there is a lot of change. The internet is taking budget away from traditional advertising, and public relations is a big beneficiary of that."
Because the shares were bought in stages, Wright has paid between 75p and 82p a share. They are currently trading at 81p.
Wright says companies would have had a large advertising budget 10 years ago and "PR would only be getting about 5% of [the combined] budget", but public relations is now seen as the more effective tool. He says this change has come about as companies are now "shooting at a much larger marketplace".
Wright is a long-time lover of small-cap companies. He says smaller agencies such as Creston have merger and acquisition potential. In Creston’s case, a bigger agency has recently taken a 6% stake in the company. While this is interesting in the short term, Wright will always tend to close out a position once it becomes too large or he sees its potential as having been achieved.
HOLD: N BROWN
Catalogue retailer N Brown might not be an obvious choice for investment - even Wright concedes that catalogue shopping is a dying industry. However, he has held shares for nearly 18 months now, previously in the Fidelity UK Smaller Companies fund and now in the Special Values fund.
Wright says the retailer is adapting its business model well to new technology by moving into the online space. Its sales were up by 50% over the past year and a rise in online sales has improved the company’s finances - because online sales cost the firm less than catalogue sales. Previously, it has spent £90 million on producing catalogues while posting profits of not much more at £110 million.
Moving online is broadening its range of sales channels, while its catalogue business remains quite niche. Internet shopping is easily accessible and allows the business to grow internationally.
Wright bought the share at around 275p, and it has already risen to 360p. He believes it has further upside potential. "Catalogue sales are definitely falling but internet sales are growing at a faster rate to replace them," says Wright.
Wright inherited some holdings in the Special Values trust that he is not overly keen on. One holding he has already axed is Kingfisher, which owns B&Q in the UK and Castorama in France.
Wright was concerned by the company’s increasingly high operating margins, particularly in France. He says DIY companies such as these tend to rely on a buoyant property and home improvements market, which is not currently in evidence, especially in France.
He says: "I am looking for businesses with potential for positive change but I think it has played out for Kingfisher for now." He adds that he can’t see much room for upward movement in margins and that "there is nothing exciting there".
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.