Fidelity American Special Situations Fund research update

Kate Marshall | Wed 25 February 2015

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Angel Agudo, manager of the Fidelity American Special Situations Fund, is confident in continued improvements in the US economy. He is encouraged by its improving employment outlook, a pick-up in consumer sentiment, and a narrowing current account deficit (when a country imports more than it exports).

That said, he acknowledges valuations in the US are no longer as attractive as they were previously, following a strong run its stock markets over the past few years. In this environment he suggests it is more challenging to unearth pockets of value. However, he believes recent increased market volatility, a precipitous decline in energy prices and the negative impact of a stronger dollar on overseas earnings has the potential to create new investment opportunities.

At present, the fund has significant exposure to the technology, healthcare and consumer sectors - this is a function of where Angel Agudo finds individual investment opportunities, rather than any strong view on these sectors as a whole.

Within technology, where 21.5% of the fund is invested, the manager has focused on out-of-favour companies with more established business models and products he believes would prove difficult to replicate by competitors. The fund currently holds a position in Oracle, a provider of computer software and hardware products. Despite recent earnings disappointment, Angel Agudo believes improving sales force productivity could lead to acceleration in the take-up of the company's software licenses. This could, in turn, see revenues improve against the expectations of other investors.

20.5% of the portfolio is invested in the healthcare sector. The manager has invested in a number of pharmaceutical firms he believes have underappreciated drug pipelines, as well as service providers - such as Express Scripts - which stand to benefit from healthcare reform and an ageing population.

Conversely, the fund has no exposure to utilities businesses and has tended to avoid other sectors such as financials and energy. Limited exposure to energy-related businesses proved particularly beneficial last year as these firms struggled to perform against a backdrop of falling oil prices.

Our view on this fund

Since assuming responsibility for the fund in December 2012, Angel Agudo has made a respectable start. The fund has returned 66.8% compared with a benchmark return of 58.8% and 52.1%* for the average fund in the sector. Please remember past performance serves as no guide to future returns.

Past performance is not a guide to future returns. Source: Lipper IM* to 02/02/2015

We like the manager's approach of aiming to identify undervalued companies, but where he sees positive change on the horizon yet to be noticed by other investors. His focus lies on companies with strong balance sheets and resilient business models, meaning further downside could be limited, though there are no guarantees. That said, his track record remains short and we would like to see how the fund performs over a prolonged period before considering the fund for inclusion on the Wealth 150 list of our favourite funds across the major sectors.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.