As the UK market approaches new highs, Alex Wright, portfolio manager of Fidelity Special Values Plc (LON:FSV), outlines why he remains optimistic about the prospects of the UK market. Even after strong returns seen over recent months, the UK remains cheap versus other markets and continues to offer attractive opportunities for value investors.
UK equities have outshone many developed market peers year to date, with the FTSE 100 recently hitting new highs of around 9,000 points. This marks a significant milestone in what many are beginning to recognise as a genuine revival in UK equities.
This outperformance comes against a backdrop where market consensus at the end of last year overwhelmingly expected US dominance to persist. Yet the exact opposite has occurred as US trade policy announcements and a reversal of the US exceptionalism narrative led to a weaker dollar. This reversal highlights the benefits of a contrarian investment approach and the importance of exercising caution in areas with excessive optimism and heightened valuations.
More broadly, we are starting to see a resurgence in UK equities, with buying interest returning to the market. Encouragingly, this has filtered down the market cap spectrum where we have a structural bias toward medium and smaller sized companies, highlighting the valuation opportunities available.
Finding value in overlooked areas
Our investment style employs a contrarian-value stock picking approach. We look for investment ideas across sectors and the market cap spectrum, focusing on unloved companies entering a period of positive change. The philosophy recognises that turnarounds take time to bear fruit and requires investors to buy into the story. By building a diversified portfolio of stocks in different stages of their recovery process, the intention is to deliver outperformance across different market environments.
The portfolio remains diversified with around 80-90 holdings across multiple sectors, with financials representing the largest sector allocation while maintaining diversification across sub-sectors, geographies and business models. The investment process is driven by bottom-up stock selection, with the managers dividing the market into four super sectors to translate positioning changes.
This year has seen active recycling of capital from areas that have performed well. We have modestly reduced our financials exposure, particularly within banks, exiting Barclays and reducing stakes in AIB Group following their strong performance. We have re-deployed some of this into a new position in Lloyds. Within the resources sector, we retain an underweight position in oil due to the challenging demand and supply backdrop. Despite an underweight position in large-cap miners due to a cautious view on iron ore, a small position in Glencore is held, given its attractive commodity exposure and constructive outlook on copper.
The strategy has been increasing exposure to domestically focused businesses, particularly within UK consumption. This includes positions in retailers such as Frasers Group, housing-related stocks like Genuit and Travis Perkins. Consumers have been saving heavily over the last two years, with consumption levels historically low due to concerns about inflation, interest rates, and ongoing geopolitical conflict. Although these issues persist, recent positive profit upgrades from retailers like Halfords and DFS have been encouraging.
Compelling opportunities remain
The UK’s unpopularity has prompted frequent questions around what catalyst is needed to improve domestic performance. We believe that nothing necessarily needs to change. The UK has been performing well over the past five years and remains a fertile hunting ground for contrarian stock pickers.
However, the fact that UK shares have performed solidly over the last five years has largely gone unnoticed, particularly among domestic investors who continue to withdraw money to allocate overseas. These outflows have characterised the market over the past decade, initially spurred by Brexit-related uncertainty and more recently accelerated by the pursuit of high growth US companies. This created a situation where investors were withdrawing capital precisely when performance improved.
Notably, strong returns are available outside of the US. While there has been some narrowing in regional valuations following the strong year-to-date performance, the UK has room to run further, continuing to trade at a meaningful discount to other regions.
Within the UK, value is being found further down the market cap spectrum. Large-cap companies are trading close to their long-term averages, with the FTSE 100 on 12.8x forward price to earnings1. Whereas mid-cap and small-cap companies present a more pronounced valuation opportunity, trading at 12.5x and 11.7x forward earnings2 respectively.
The current market conditions continue to favour our contrarian-value investment style. While it’s still a developing trend, it’s encouraging to see other market participants showing increasing interest in UK equities. The UK market offers a rich pool of investment opportunities for diligent investors, combining strong earnings growth, high dividend yields and low valuations.
A market revival underway
The combination of attractive valuations, particularly in small and mid-cap stocks, improving sentiment, and a broadening rally beyond large caps creates a compelling investment case.
While the economic environment remains uncertain, the UK is a large and diverse market, and there are numerous overlooked companies across the market cap spectrum with good upside potential.
For value investors willing to look beyond the popular narratives and crowded trades, the UK continues to offer a fertile hunting ground. The recent resurgence in buying interest, combined with persistently attractive valuations, suggests this rally may indeed have further to run.
[1] LSEG Workplace, July 30, 2025
2 LSEG Workplace, July 30, 2025
| Past Performance (%) | |||||
| 1 Aug 20 – 31 Jul 21 | 1 Aug 21 – 31 Jul 22 | 1 Aug 22 – 31 Jul 23 | 1 Aug 23 – 31 Jul 24 | 1 Aug 24 – 31 Jul 25 | |
| Net Asset Value | 51.6% | 4.3% | 4.9% | 22.1% | 14.1% |
| Share Price | 66.6% | -0.8% | 1.7% | 26.5% | 17.1% |
| FSTE All-Share Index | 26.6% | 5.5% | 6.1% | 13.5% | 12.2% |
| Past performance is not a reliable indicator of future returns. Source: Morningstar as at 31.07.2025, bid-bid, net income reinvested. ©2025 Morningstar Inc. All rights reserved. The FTSE All Share Index is a comparative index of the investment trust. | |||||
Important information
Past performance is not a reliable indicator of future returns. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Overseas investments are subject to currency fluctuations. Changes in currency exchange rates may affect the value of investments in overseas markets. This trust can use financial derivative instruments for investment purposes, which may expose them to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Investments in smaller companies can carry a higher risk because their share prices may be more volatile than those of larger companies. The shares in the investment trusts are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trusts can gain additional exposure to the market, known as gearing, potentially increasing volatility. Reference in this article to specific securities should not be interpreted as a recommendation to buy or sell these securities but is included for the purposes of illustration only. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
The latest annual reports, key information document (KID) and factsheets can be obtained from our website at www.fidelity.co.uk/its or by calling 0800 41 41 10. The full prospectus may also be obtained from Fidelity. The Alternative Investment Fund Manager (AIFM) of Fidelity Investment Trusts is FIL Investment Services (UK) Limited. Issued by FIL Investment Services (UK) Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0825/404908/ISSCSO00247/NA
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.
