UK equities remain attractively valued despite a stronger market backdrop. That discount continues to create opportunities, particularly in companies where weak sentiment appears to have gone too far.
Alex Wright, Portfolio Manager of Fidelity Special Values plc (LON:FSV), continues to focus on areas of the UK market where valuations remain low and the potential for positive change is not yet fully reflected in share prices. In discussion with Kepler Partners, the emphasis is on identifying businesses that have been overlooked, misunderstood or written off, while maintaining discipline around valuation, risk and the timing of any recovery.
The UK market recovered during the second quarter as risk appetite improved and corporate earnings remained resilient. The rebound broadened beyond the largest companies, with more domestically focused and cyclical businesses also recovering. Mid and small caps participated more meaningfully after a long period of weaker performance.
Even after that improvement, UK equities continue to trade at a substantial discount to other developed markets. That leaves room to find businesses where current share prices reflect a high degree of pessimism, but where the underlying outlook may be improving.
The key is not simply to buy cheap shares. A low valuation can reflect real and lasting problems. The more important question is why a company has fallen out of favour and whether there is a credible reason for expectations to improve.
That approach becomes more important as artificial intelligence changes industries and business models. AI may strengthen some companies while weakening others. It can alter competitive positions and put pressure on established ways of operating. As a result, a company that looks inexpensive on traditional valuation measures may still face serious structural risks.
The strongest opportunities are likely to be businesses where the market is pricing in a weak outlook, but where there are signs that conditions could improve.
A potential catalyst can make the difference. A company may remain undervalued for a long time if there is no reason for the market to change its view. Operational improvement, strategic changes or evidence that a business is performing better than expected can support a reassessment.
Buying too early can leave capital tied up in a business that remains out of favour. Waiting for every sign of improvement, however, can mean missing part of the opportunity. The aim is to identify companies where the balance between valuation, risk and potential change is becoming more attractive.
The broader recovery in UK equities is therefore helpful, but it does not remove the need for discipline. Some companies will justify their low valuations, while others may be priced for outcomes that prove too pessimistic.
AI adds another layer to that judgement. Businesses need to show that they can adapt as technology changes the way industries operate. Companies with resilient models, realistic valuations and clear scope for improvement may be better placed than their current share prices suggest.
The UK market still offers that combination in selected areas. Valuations remain low relative to other developed markets, while broader participation across mid caps, small caps and cyclical companies has expanded the range of opportunities.
The focus remains on finding businesses that have been overlooked or written off, understanding why they are cheap and identifying what could change. That creates a more disciplined way to approach UK value at a time when technology and market expectations are both moving quickly.
Fidelity Special Values PLC Past Performance (%)
| Jun 21 – Jun 22 | Jun 22 – Jun 23 | Jun 23 – Jun 24 | Jun 24 – Jun 25 | Jun 25 – Jun 26 | |
| Net Asset Value | -2.10% | 8.20% | 18.10% | 17.60% | 17.00% |
| Share Price | -7.10% | 1.70% | 20.10% | 25.90% | 18.10% |
| FSTE All-Share Index | 1.60% | 7.90% | 13.00% | 11.20% | 21.90% |
Source: Morningstar as at 30.06.2026, bid-bid, net income reinvested
©2026 Morningstar Inc. All rights reserved. The FTSE All Share Index is a comparative index of the investment trust
Past performance is not a reliable indicator of future returns
Fidelity Special Values PLC (LON:FSV) aims to seek out underappreciated companies primarily listed in the UK and is an actively managed contrarian Investment Trust that thrives on volatility and uncertainty.
