While global investors chase pricey US tech names, a quiet revolution is unfolding in Britain. Underloved and undervalued, the UK market is proving fertile ground for contrarian strategies that prioritise earnings, dividends and value. At the heart of this resurgence lies Fidelity Special Values – a trust that has not only outpaced its UK peers but even beaten the high-flying Nasdaq over the past four years.
The prolonged favouritism toward growth and tech stocks left UK equities in the shadows, particularly those with a value tilt. But as interest rates normalised and global markets recalibrated, value stocks – and the UK market with them – have staged a comeback. Fidelity Special Values has capitalised on this shift, delivering robust returns by sticking to fundamentals: low valuations, resilient earnings and smart capital allocation.
Importantly, these returns haven’t been driven by an upward rerating of UK stocks. Instead, UK companies in the portfolio have posted significantly stronger earnings than the broader market, buoyed by strategic share buybacks and a wave of M&A activity led by international investors. While some upward movement in valuations has occurred, UK equities remain attractively priced, now trading at just 75% of global peers on a sector-adjusted basis – a historical low that underscores the embedded value opportunity.
Smaller companies, often overlooked by the broader market, are particularly compelling. With an average price-to-earnings ratio under 10x, this segment is rich in potential. Approximately half the trust’s portfolio is allocated to small and mid-cap names, a structural tilt that’s become increasingly fruitful.
The trust’s largest sector weight is financials, but with a diversified mix including UK stalwarts like NatWest and Barclays, as well as international names like Standard Chartered. Holdings also span the insurance sector and defensive plays such as tobacco and consumer healthcare. Importantly, exposure is deliberately broad across industries and business models. The lone consistent underweight remains in resources, where the team finds value opportunities scarce.
A core tenet of the investment approach is risk awareness. Rather than chasing speculative upside, the team evaluates downside risk first – examining financial, earnings and valuation metrics to ensure capital preservation even in uncertain markets. This philosophy supports the creation of asymmetric return profiles where losses are minimised and upside is captured when sentiment shifts.
Avoiding value traps is another focus. The team conducts deep research, engaging not just with companies themselves but also their suppliers, customers and competitors to identify catalysts for positive change. This intensive due diligence, enabled by Fidelity’s global research platform, helps filter for companies with genuine turnaround potential.
In 2025, the divergence in international market performance has already shown that crowd-following strategies may no longer work. The surprise underperformance of the US versus expectations reinforces the relevance of contrarian investing. As Fidelity Special Values demonstrates, the UK equity market, with its low valuations, strong earnings and rich dividend yield, may be the smart place for investors looking beyond the obvious.
Fidelity Special Values plc is a UK-focused investment trust employing a value-based, contrarian strategy. It seeks to uncover mispriced opportunities across the market, with a structural bias toward small and mid-sized companies, underpinned by rigorous research and downside risk control.
