The fund house said Shah’s ‘against the tide’ style of investing will lead to periods of significant periods of underperformance when the market momentum is heavily in one direction.
Earlier today, Portfolio Adviser reported on Fidelity’s removal of the fund from the Select List, while some of its Special Sits peers had been kept on.
"This has been the case from September 2009, since when sentiment has been consistently negative towards the banking sector and positive towards late-cycle sectors, in particular energy and until late 2011, miners," the Fidelity spokesperson explained.
This means the outperformance from the start of Shah’s tenure in January 2008 has been given back.
During this time he beat the fund’s benchmark – the FTSE All Share Index – by 15.2%, Fidelity said.
It added that Shah’s fund has started this year strongly, returning 12% compared to 7.1% from its benchmark.
"Shah has stated that he is confident that as the slow and grinding recovery back to a more normal economy continues over the next phase of the market, the stocks within his portfolio will add to significant long-term value for his investors."
External view
Morningstar’s latest report on the fund also gives support for Shah, with analyst Richard Whitehall, stating: "Despite recent underperformance, we retain high conviction that Sanjeev Shah’s contrarian philosophy and process will reward investors in the long term.
"Shah’s investment philosophy is very much in the mould of Bolton, which is not surprising given that he had worked with Bolton for 12 years prior to taking control of this fund.
"Occasional, marked underperformance is expected with contrarian strategies. we also note that over the longer term, despite its recent woes, the fund’s track record is stronger. Performance is slightly ahead of the category average since Shah took control, providing some evidence of the value added by Shah’s stock-picking."
Morningstar gives the Fidelity Special Situations Fund a silver rating, which it gives to a fund with notable advantages across several, but perhaps not all, of the five qualitative pillars — strengths that give the analysts a high level of conviction.
For its quantitative, performance-based, rating Morningstar gives the fund three stars.
