Fidelity American Special Situations Fund

(B89ST70) £26.11

Gain to date: 12.7%

It’s easy to get complacent when markets are doing well, and the success of US equities since last October is a case in point.

While investors might have enjoyed decent gains, there are growing concerns valuations are looking a bit rich and highly-rated stocks could be punished if we see a pull-back in the market.

That’s where it can pay to have a value tilt to part of your portfolio. Shares highlighted the attractions of Fidelity American Special Situations (B89ST70) last December, selecting the fund for its value bias and as a way of providing portfolio diversification.

It looks for companies which have quality characteristics but where the shares look too cheap versus their intrinsic value, often as a result of short-term negative issues.

WHAT’S HAPPENED SINCE WE SAID TO BUY?

The fund has returned 12.7% since our original tip, in line with the performance of the S&P 500 index of US-listed companies.

Some of the fund’s biggest holdings have perked up on the stock market, helping to boost the value of the portfolio. Shares in FedEx (FDX:NYSE) hit a three-year high last month after the company’s third-quarter results beat expectations and it unveiled a $5 billion share buyback plan. FedEx has been cutting costs and improving digital capabilities, underpinning Fidelity’s confidence in the company’s turnaround.

Norfolk Southern (NSC:NYSE), another portfolio holding, has also enjoyed a strong share price performance of late. The freight train operator is currently the target of activist investor Ancora, and Fidelity believes the company plays into the growing trend for ‘onshoring’ as well as being positioned to benefit from cost efficiencies and margin improvement.

WHAT SHOULD INVESTORS DO NOW?

Keep buying the fund. A resilient economy, growing inflationary pressures and a solid jobs market suggests that the Fed won’t rush to cut interest rates. That presents a serious risk of a market correction. Lower-value companies with quality characteristics should fare better than go-go growth stocks on high multiples, hence the Fidelity fund could provide some ballast to a portfolio. 

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