Fidelity's Alex Wright said his call to move some of his Shell positioning over to the oil & gas group OMV "proved rewarding" as investors "misunderstood" the latter's exposure to Russia.
Russia's initial invasion of Ukraine almost exactly four months ago caused a wealth of managers to shift portfolio positions out of stocks with exposure to the invading territory.
Wright (pictured) said that although Shell and OMV have similar Russia revenue exposure, equivalent to 3-4% of profits, the latter's share price was punished for this whereas Shell's has "risen strongly".
But for Wright, whose Fidelity Special Values PLC and Fidelity Special Situations portfolios have an explicitly value style, seeking out attractive companies at a marked discount, this proved to be an opportunity.
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He was optimistic about the outlook for OMV, saying "it is expected to benefit from increased demand for European gas in Europe".
The war in Ukraine has had a big impact on markets, in many ways, but pockets of it have benefited, although not the ones Wright invests in.
He said that the stock and sector performance has "diverged meaningfully" and "the funds' structural bias to small and mid-caps and sector exposure (underweight oil/gas and mining, and overweight consumer discretionary) have proved a headwind.
"However, it has been pleasing to see performance meaningfully pick up in May. It is very unusual to see the funds are 3-4% ahead of the index over a one-month period".
Companies Serco and tobacco firm Imperial were some of the key drivers to this recent positive performance.
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One sector Wright was increasingly bullish on are banks, which have been receiving a lot more attention with the recent interest rate rises.
The manager said that he has taken his banking exposure to an overweight, adding to Barclays and AIB and has benefitted from it.
"The sector typically sees profits hit in downturns, but today banks have strong balance sheets and consumers are in much healthier position compared to prior recessions," he said.
These have been some of the positive stories in Wright's portfolio but the amount of M&A activity has had an impact.
He said the funds' focus on undervalued companies with "sound or improving fundamentals" has meant that many portfolio holdings have been the subject of M&A bids.
"In aggregate our portfolio holdings are trading at a significant discount to the broader UK market, without having to sacrifice quality, profitability or return on capital. Given this, it is of little surprise that over a dozen of our holdings have been the subject of bids over the past two years, with power generation company ContourGlobal the latest to receive an all-cash offer from private equity group KKR."
Wright said that this was a "sizeable" holding in the fund (2.3%) and was therefore the biggest performance contributor in May, since the bid was at a 36% premium.
Looking ahead, Wright said although there were significant headwinds at both the macro and micro level he think that "sentiment has recently become overly pessimistic".
According to him, a downturn is already priced and cyclicals and mid/small caps have "significantly derated reflecting excessively negative outlooks, which is presenting us with attractive opportunities".
