The significant fall in markets over the past 12 to 18 months has created some exceptional stockpicking opportunities across a broad range of sectors.

According to Sanjeev Shah, manager of the Fidelity Special Situations fund, the current market turmoil is an ideal opportunity to uncover value.

He comments, ‘For the first time in a long time, there is a real divergence in valuations at both the company and sector level. This is an ideal environment for a stockpicker like me, as I hope to identify the companies that are likely to come out of the economic turndown even stronger and buy them at extremely attractive valuations.’

At times like this in the market cycle, weak investor sentiment can mean that the share prices of companies can become extremely cheap. Today, UK valuations are below the 2003 and 1992/3 trough levels on both price-to-book and price-to-cash flow basis.

Shah says, ‘In the Fidelity Special Situations fund I have found opportunities in some of the unloved sectors such as retailers, housebuilders and financials. Kingfisher, HMV and Marks & Spencer were all added to the portfolio in mid-2008, as well as Bellway, Bovis and Provident Financial. Kingfisher, which owns B&Q, has been a good recovery story.

‘While markets have picked up slightly in the past week or so, it is difficult to say with certainty whether we are seeing a bear market rally or the beginning of a recovery.’

He adds, ‘What I would say however, is that for mid- to long-term investors, the opportunities to find exceptionally cheap shares have not been so plentiful in years. Investors should consider slowly but surely increasing their exposure to equity markets through phasing or drip-feeding.’