Okay, well, thanks very much, everyone, sort of sticking with this and giving me the chance to deliver the last of today's presentations. I'm going to talk about the Special Values Investment Trust, which I've been running for just over 12 years and has been under Fidelity's management just over 30 years. So we celebrated the 30th anniversary recently. So if we just move forward to slides, first disclaimer, and just to the team on slide three. So I've been at Fidelity for 23 years, managing this trust since 2012, and my co-fund manager, Jan Winon, listed here on the slide, formally became co-fund manager back in 2020, but actually we've been working together pretty much for a decade since he stepped onto the UK smaller companies run back in 2013.
I think what's very important about the Fidelity setup, though, that we're showing on this slide, is not just the other UK fund managers, but the very wide analyst research that we have at Fidelity, and I think again industry-leading in terms of numbers of people in different places around the world. 133 equity analysts placed in our different offices, and importantly, around 40 of those covering UK equities as part of the pan-European coverage based in London. And hopefully through the presentation we'll bring to life sort of how they're really key to the performance of the trust over time, our ability to add consistent outperformance.
If we then go on to the next slide and look at sort of what do we do, hopefully many of you will be aware of this sort of Morningstar star box that we're showing here. It's a sort of industry norm for sort of showing sort of the key characteristics of a fund. And as it's always been, along with its sister open-ended fund, Special Situations, Special Values is a value contrarian mandate and has a very strong mid and small cap bias. So while we invest across the market cap spectrum in the UK, and we have about 50% of assets in medium and small businesses, so those key characteristics compared to the market: the market in the UK more value, even compared to what is quite a value market in the UK, and a big strong mid-small cap bias over the bulk of the assets.
Next slide just shows sort of what we've achieved over time, and it is a 30-year track record that we're very proud of. So you can see here sort of the massive wealth generation over this 30-year period with this sort of 2,800% performance compared to the market at 7%. And if we break that down into sort of what that's been on an annual basis, you can see that since inception this fund has delivered about a 12% return, which is 4.7% better per annum ahead of the market. And during my tenure, which is the last 12 years of that, you can see not so dissimilar figures, so 11.2% annualized return, circa 4% ahead of the UK market.
So clearly many of you will have heard of sort of Anthony Bolton, who founded Special Situations and Special Values. Obviously an incredibly strong track record, and it's great to see that this has very much continued post Anthony's retirement, and we've been able to continue to add significant value looking for unloved UK companies and been able to do so much better than the market as a whole.
We go on to the next slide. This talks about the investment process. So what are we looking for in the companies in the investment trust? And it's very much a bottom-up stock-picking trust. So everything's in there because it's an interesting company, rather than sort of having any very strong top-down views or sectors that we want to crowd into. It's about each individual company. It's quite a diversified trust, and there's about 90 individual stocks in the portfolio. And this allows us to invest right across the market cap spectrum, all the way down to 100 or 200 million market cap stocks at the bottom, all the way up to some of the sort of titans of the index, the top companies, sort of like AstraZeneca or NatWest at the top of the portfolio and top of the UK markets.
But what's important is every stock that's in the fund, we always have to have a very strong view of what we're investing in, and also think very much about sort of how much of investors' money we could lose as well as how much money we could make on every individual idea. And so we do a lot of work on the downside, thinking about earnings risk, financial risk, and very importantly, valuation risk. Even if you buy a good business that has a solid balance sheet, if you pay the wrong price for that business, you can still lose a lot of money. And indeed, I think a lot of people in markets have forgotten that over the last couple of years, that actually valuation is always really important to long-term returns.
We're not just a deep value fund, though, that sort of buys cheap stocks and hopes that things improve. We're very much looking at fundamentals of companies and thinking about what will happen to the fortunes of these companies going forward and what will improve the current valuation of those companies. And that's where the analyst team of Fidelity really come into their own, because we meet hundreds of companies annually, trying to see what they're trying to change, what's going on in their industry. And then importantly, we don't just talk to the companies in the portfolio themselves; we talk to a huge range of other relevant companies and people to really get a rounded view of what's going on. So talk to customers, talk to suppliers, do calls with industry experts, site visits on the ground to really get a rounded picture of what's going on. And it's really this investigation that really gives us the chance to add that alpha, outperform the market over time.
So that's the basics of sort of what we do, and let's talk about sort of the conditions for the UK market and what we've been seeing recently and why we're excited about prospects. So the first thing I wanted to talk about is the sort of the value-growth debate. So this very much is a value fund, and why value funds have a good name over time is that because the value factor has been shown to outperform the growth factor over the very long term. And indeed, this is UK numbers going back to when this was starting to be tracked in the UK, but if you look at US numbers, they go back even further into the early 1900s. You can see there is over time benefit to being a value investor compared to being a growth investor, and that makes a lot of sense to me because it's a behavioral reason.
Clearly, if you think about exciting growth companies and what's going on with them, they're forging new paths, they're exciting characters, their sales are going up, they're very easy to interact with, very exciting for managers to interact with, very easy to sell to managers' clients. But because of that, they're generally very well priced, and actually you have to have a very high batting average, so effectively get it right very regularly to actually make any money in growth stocks. But if things go wrong, you lose a lot of money, so you get a terrible negative asymmetric risk-reward investing in growth stocks. If they go well, that was consensus, you don't make so much money, but if they go wrong, you can potentially lose a lot.
Whereas the opposite is true in value stocks, and that's what excites me about the area. Effectively, if the consensus is negative, the stock's cheap, and it actually turns out that consensus is correct, you don't lose much money because that was already priced in. But in fact, if the market is wrong, actually it's missed something, and there's something good going on in the company, you can make a lot of money.
Now, what's interesting is these two charts on the right-hand side show is that this historical sort of outperformance of value really came unstuck actually pretty much around the time that I launched the UK smaller companies fund back in '08, and it was a very painful 12 years for value managers and value and people investing in the UK market, which is quite a value market. And I think that was because of the zero interest rate policy that you saw during this period. While there have been periods in the past where zero interest rates have existed before, they were only really for a very short period of time after a crisis or recession. But actually, we had pretty much a decade-long period with basically no cost of capital, so no real punishment mechanism. If your growth didn't come through, you could always raise more capital, there was more capital available, and so actually very unusually, growth stocks outperformed for quite a long time, clearly culminating then in the nadir with COVID, where clearly growth stocks with a large preponderance of technology and sort of remote businesses that didn't require contact were shut down by COVID, and so that was very difficult and was a headwind to performance of the trust during that period.
Now, very encouragingly, and something that many investors haven't really sort of noticed because maybe it is a bit different in global and particularly the US market, but actually in the UK market, value has now been outperforming for over four years. So from that, in the year of COVID, you can see here growth has very much underperformed value, and that's been a real tailwind to performance. But I think it is more going back to that normal world that you can sort of see on the long-term data from sort of 1992. So not something that's unusual, but actually a more normal state of affairs, which is very positive for performance.
And indeed, if we look at the next slide, you can see that not only over the last four fiscal years, so SVS's fiscal year starts September 1st, not only have we done very well versus the UK market and very handsomely outperformed, but over that period we also have beaten the US market, beaten the NASDAQ, which again I think is something that most investors are quite surprised about when they see that you can buy a trust that over the last four-year period has handsomely beaten what's been regarded as one of the world's best stock markets over recent times. And so there is really good performance to be had here in UK value companies, especially down the market cap spectrum.
What's also encouraging, though, is we can see from sort of the next slide, this strong performance of the trust has not been achieved with there being a big re-rating of UK equities. Indeed, if we look at either the absolute valuations on a price-to-earnings basis on the right-hand side, or relative PE, so effectively adjusting for sectoral differences, so effectively just same sector, same sector on the left-hand side, you can see UK historically maybe used to trade 85, 90% of global markets. Actually, through a period where the UK outperformed post the financial crisis, we actually got to the point where we're valued about in line today.
The valuation of the UK market is incredibly cheap, so a 25% discount to global markets, and no real change actually in that undervaluation over the last couple of years. It's a couple of years when the UK market itself has been doing better. So actually what that shows is that UK earnings have been pretty good over the last couple of years, actually better than global earnings, and yet you still see these massive valuation differentials. The UK market on about 12 times earnings compared to other developed markets, maybe like 15, and obviously the US market on about 25 times earnings. So a huge valuation differential, half the valuation of the US market, despite earnings growth in the UK having been quite good over the last three or four years.
Next slide shows that I think it's not just a relative valuation game. I think the UK is actually absolutely attractively valued. And so you can see here, UK market on about sort of just under 12 times earnings, that compares to sort of 14 times historically. So I think even versus its own history, the UK market is cheap. And I would say probably over the last 12 or 24 months or so, there has been a particular opportunity I think opened up in smaller cap equities, which are trading in the UK under 10 times.
If you have a look at sort of how we're investing versus this market on the next slide, you can see actually we're very diversified across the UK markets, with overweights compared to the index in all of financials, GDP sensitives, and defensive companies, with the only key underweight being in resources. Now, actually that's been a fairly consistent underweight, so we haven't had much in mining or oil during the time that we've run the fund. And indeed today our weights in oil have been declining as actually that sector has done sort of quite well, and actually we still struggle to find sort of value there, whereas everywhere else in the UK market I think there's a lot of value.
The next slide drills down into sort of where is some of that value and where are we positioning. And you can see that financials is by far and away the largest weight, and as you can see we are overweight that sector as a whole, but that is quite diversified. So again, that large number of names, 90 names, allows us to be quite diversified between countries and business models. So we do have some of the big UK banks like NatWest and Barclays, which have been spectacularly good performers over the last year. In fact, over 12 months both those stocks have roughly doubled and so have been big contributors to performance. But also we own emerging markets through Standard Chartered, and we own some of the insurance companies, both life and non-life, with the likes of Aviva, Direct Line, as well as some smaller non-bank financials, some reinsurers like Lancashire and Conduit. So there's a lot of interesting companies in the financial space in the UK and a lot of value to be had there.
Another key overweight that I think is quite differentiated versus many funds is the fact that we do have a reasonable weight in tobacco. We've got about 6% of the fund there across Imperial, which is the biggest position, and also more recently BAT. Again, particularly Imperial, which has been a more long-standing position, we bought that about five years ago, and that's now delivered about 100% total shareholder return. So from a very unloved sector, both businesses delivered a very handsome return for shareholders, owned by very few other UK funds.
In terms of areas that we're underinvested in, capital markets is mainly actually other investment trusts, so we don't invest in those. Key underweight in a big sector like oil and gas, we don't own any of Shell or BP. We have owned Shell in the past, but the stock's done well and we sold out of it. Interestingly, recently we bought into Total in that area, as well as owning Energean, Petra, Jadestone, Wood Group in oil.
If we then go on to the next slide, I think this is a really exciting slide for me because it sort of shows where has performance come from and what are we thinking we might see going forward. And so if you look at the outperformance of the trust in the last year, last fiscal year, we delivered over a 20% performance, over 7% ahead of the benchmark. And why was that? It was primarily through very good earnings delivery in the portfolio. So you can see here, these are all Fidelity internal estimates, but clearly 2024 are very now close to actuals, and you can see portfolio earnings have grown on an operating level by almost 15%.
That compares to actually the UK market, which has seen a decline in its earnings this year. Primarily, you've seen some big staples like Diageo have a tough year, oil prices are down a bit, and so are iron ore prices. So those have dragged back total earnings for the UK market, so that actually the fund has seen its earnings growth be about 20% better than the market as a whole, which has been the real power of performance. So it's not been that we've seen a re-rating of the portfolio, it's been that we've seen very strong earnings delivery, and we are forecasting that to continue. So if you look at '25 and '26, not quite the same high level of growth of this year, but still very attractive, close to double-digit levels of operating profit growth from a starting earnings multiple of only 11 times.
UK market and the stocks within the fund are both yielding maybe around 4% as well, so you're getting good dividends and good earnings growth from really quite a low starting multiple. And also importantly, we're making sure we don't take too much risk to generate that either. So you can see here the leverage of the portfolio is below that of the UK market, and actually the returns on invested capital are pretty similar. So you're getting overall roughly the same quality as the market, but growing faster at a circa 20% valuation discount. So the characteristics of the portfolio still look very good today, even after such a strong absolute performance the last year.
I think it's also worth commenting, as we see on the next slide, one of the things this low valuation of the fund and then also of the UK market has been generating is substantial inbound M&A to the UK market, and that has been a power of performance. Most recently with the Aviva bid for Direct Line, which was a large holding, but also Essentra was another spectacular takeover that we saw earlier in the year, which was a large holding in the fund. And this very much has been a theme that's actually been the case for the last couple of years. So smaller UK companies in particular being taken over by either larger peers, be they UK-listed, but primarily actually foreign and US-listed, and private equity takeovers.
Because if you look at obviously those valuations available in other markets, and again private markets tend to benchmark off the US, which is the world's biggest market, they're very different even for the same type of company, even if your geographical exposure is similar as well. So indeed the UK market is extremely international, actually about 75% of the UK market's earnings are outside of the UK. So you're really getting a sort of global snapshot here in the UK. The big difference compared to other markets is you're getting those global companies at a very low valuation, which is the thing that excites me.
So to conclude, I think we're sort of roughly bang on time. I think despite very good returns from UK equities over not just the last year but the last four years, they still remain very cheap versus other markets, and I think also good on an absolute basis. The big divergence between valuations as well within markets is particularly helpful for us as active stock pickers because it means we can take advantage of those low valuations and are able to assemble this portfolio at a meaningful discount to the UK market, despite what we expect to be better earnings growth prospects. And I do think that going forward, if the valuation of the portfolio and the market doesn't move up significantly, there will be continued sort of M&A, and we will be able to continue to benefit from that and provide very good returns to our fund holders.
