Best of British… fund that seeks to steal America’s Big Tech glory

The UK stock market may be overshadowed by its Big Tech-dominated counterpart across the Atlantic, but these are rather good times for investors who have stayed loyal to UK plc.

A combination of lower inflation and future interest rate cuts have helped push the FTSE100 Index to record levels.

And while nothing is guaranteed when it comes to investing, UK fund managers believe there is more to come as company valuations readjust upwards to move more in line with both historic levels and other key stock markets.

Alex Wright is longstanding lead manager of Fidelity Special Values, a £924 million investment trust that invests 80 per cent of its assets in the UK.

Among its key holdings are FTSE100 stocks Imperial Brands (a payer of attractive dividends), Aviva (another income-friendly company) and NatWest.

‘If you’ve been invested in the UK stock market over the past three years, you’ve done pretty well in absolute terms,’ he says.

‘The FTSE All-Share Index has provided an annual return of around seven per cent, the FTSE100 Index slightly higher.

‘Yet when investors see what they could have made from holding some of the big US technology shares [the likes of Meta, Microsoft and Nvidia], the UK numbers look relatively unappealing.

‘It’s understandable, therefore, that they are drawn to the US market.’

Wright’s view is that the US stock market looks expensive. And while the UK does not possess any compelling tech businesses to reawaken investor interest, it is an equity market that draws a significant slice of its earnings from overseas. In other words, it is not simply a play on the UK economy.

‘Aviva is not just a UK life insurer,’ says Wright. ‘It has a Canadian general insurance business. Similarly, our biggest holding, DCC, is a diversified business providing services worldwide to companies in the energy, healthcare and technology sectors.’

The trust has a 100-strong portfolio with companies ranging in market size from £100 million to £100 billion-plus. Its biggest sector position (more than a quarter of the trust’s assets) is in financials, primarily because many of the banks are cheaply priced compared with the rest of the market.

‘It’s a diversified approach,’ says Wright. ‘We have eight bank holdings, but they all bring something different to the party.

‘For example, NatWest is a UK domestic bank while Standard Chartered is very much a play on the Asian economy.

‘We also hold Irish bank AIB and Kazakhstan-based Kaspi that is expanding its banking operations into Uzbekistan and is very much in growth mode.’

The trust delivers a mix of capital and income return. This means it holds a mix of divi-friendly stocks and more growth-orientated companies such as airline Ryanair which does not pay shareholders an income.

The result is a dividend equivalent to an annual income of three per cent – with income payments having grown in double-digit percentage terms every year for the past three financial years.

The trust’s annual charges total 0.7 per cent; its stock market identification code is BWXC7Y9; and its ticker is FSV.

Over the past one, three and five years, it has delivered respective returns of 8, 13 and 25 per cent. The shares, trading at around £2.93, stand at a near 9 per cent discount to the value of the trust’s assets.