One of the City’s top investors in UK stocks has bought shares in kitchen, sofa and bicycle retailers, defying the conventional wisdom that British households are too stretched to splash out on bigger-ticket items.
Alex Wright, who manages £4.3 billion of UK-focused funds for Fidelity International in London, said the “unloved” UK was one of the most insulated economies from the tariffs chaos and was therefore “strikingly” well placed.
Many economists say the barrage of tax increases and higher bills imposed this month by councils, energy suppliers, water companies, broadband suppliers and mobile phone networks will crimp spending on higher-value non-essential items, but Wright is more optimistic.
“We recently increased exposure to retailers specialising in big-ticket items such as kitchens and sofas, where sales are 10 to 25 per cent below historical volumes,” he said. “We anticipate an improving outlook as housing market volumes strengthen and interest rates decline, coinciding with a reduction in industry competition.”
Wright’s recent share purchases include the sofa retailer DFS and Howdens, which manufactures and installs kitchens. He has upped his stake in Frasers Group, the Sports Direct owner whose high-value retailers include the luxury clothing brand Flannels and the bicycle retailer Evans. He is also an investor in Halfords, another bike retailer, and Norcros, one of the biggest suppliers of bathroom and kitchen products in the UK.
Wright is regarded as a top-five investor in UK stocks and manages both Fidelity Special Values, a £1.1 billion FTSE 250 investment trust, and Fidelity Special Situations, a £3.2 billion unlisted fund.
He has been bullish about UK stocks for some time and argued that although tariffs would impede global growth, “The UK market is well-positioned to withstand this US-centric storm. Direct tariff exposure is minimal given the UK’s small export base and service-oriented economy.”
He also said that the UK stock market was heavily skewed to defensive sectors such as consumer staples and utilities, which were resilient in downturns. This was “strikingly different” from other countries with high export dependencies to the US.
The unpopularity of the UK with investors had made it “an attractive hunting ground for contrarian value investors”, he said, disclosing that he had added to his holdings in British American Tobacco, Reckitt and National Grid. He warned, however, that recession risks had “clearly escalated”.
His latest tactics were revealed in the interim report from Special Values, which reported a total return of 5.2 per cent in the six months to the end of February, exactly matching the FTSE All Share total return.
• Fidelity fund manager says UK stocks deserve more love
The trust chalked up outperformance by investing in banks and industrials, but was held back by its exposure to healthcare and property. It was hit by profit warnings from the oil engineering consultancy John Wood and underperformance at the geo-engineer Keller. Wright was also wrong-footed by a considerable profit warning from IG Design, a manufacturer of gift wrap and greetings cards, whose shares more than halved in January.
Special Values is the best-performing investment trust in the All Companies category of UK investments over one, five and ten years. The Special Situations fund follows a similar investment philosophy but with less gearing. Both funds were once managed by Anthony Bolton, who was often hailed as Britain’s top stockpicker in the 1980s and 1990s.
Investment management fees paid by Special Values to Fidelity in the half year increased from £2.89 million to £3.36 million.
