M&G Recovery – Fund update

The M&G Recovery Fund does exactly what it says on the tin. Tom Dobell, the manager, focuses on troubled companies where a good management team is making concerted efforts to turn the business around. In this vein he looks to identify companies whose share price has fallen well below their true worth. This approach recently brought BP onto his radar.

Following the well publicised disaster in the Gulf of Mexico in April, BP shares fell over 50% from a high of £6.50 to around £3. While they have since recovered some ground they remain well off their pre-spill highs. Tom Dobell viewed this as a rare opportunity to invest in one of the UK’s leading companies at bargain price. He believes BP owns some of the best oil assets in the world and over the long term will recover from the disaster and reward investors. BP is currently the largest holding in the portfolio at just over 6%. In total approximately 20% of the fund is invested in oil and gas companies.

Elsewhere, Tom Dobell is positive on chemicals manufacturer Croda International which has benefitted from increased demand for its products and effective cost cutting by an astute management team. Following an encouraging set of results recently the company also announced an impressive 50% increase in its dividend payment.

The portfolio also contains exposure to less economically sensitive companies, which supply products and services that should remain in demand regardless of the outlook for the UK economy. The fund has key positions in healthcare and utilities companies with 7.6% and 6.1% invested in each sector respectively. Telecommunications provider Vodafone also features, making up 3.4% of the fund, and is expected to benefit from an increase in mobile internet usage and growth from its operations in emerging markets.

Conversely, Tom Dobell is less optimistic on his outlook for the UK banking sector, believing the potential reward is not yet high enough compared to the risk of further falls in share prices. He therefore has a very low exposure to this sector with HSBC his only holding among the major banks.

This is a highly flexible fund that has the freedom to invest across the whole of the UK stock market. It can therefore invest in smaller and medium-sized companies, which are higher risk, as well as large companies listed on the FTSE 100. Over the past 5 years the fund has returned 47.1% compared to 15.3% for the sector. Please remember past performance is not a guide to future returns.

Past performance is not a guide to the future. Source: Lipper Hindsight.

We hold Tom Dobell in high regard and believe his approach of searching out some of the most undervalued companies in the UK and investing for the long term could serve investors well. This fund therefore remains on the Wealth 150 list of our favourite funds in each sector.