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Investec Global Special Situations Fund - a contrarian approach to global investing

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.

Alastair Mundy and Mark Wynne-Jones, managers of the Investec Global Special Situations Fund, take a contrarian approach, investing in areas where others fear to tread. While uncomfortable for many, a philosophy of identifying overlooked and undervalued stocks can prove a rewarding strategy over the long term.

The managers look for businesses which have fallen deeply out-of-favour but are easy to understand, carry little debt, and where the management has a history of successfully navigating a difficult economic backdrop. They believe companies with these attributes are in a strong position to grow.

Their process naturally leads them to stocks within regions which have experienced a torrid time. In the depths of the financial crisis they found many strong but economically-sensitive companies which had fallen in value, particularly those listed in peripheral European countries such as Ireland. Construction and materials company Kingspan is one such company. The managers first bought shares in March 2009 at €2.20 per share, following a 90% fall in value. The balance sheet was strong, management appeared conservative and they held considerably less debt than their peers. However its cyclical nature and Irish domicile meant many investors were wary. In fact, only 5% of sales were to Irish customers and the managers felt the business was in a strong position to bounce back when growth returned. Their views proved correct and the shares trade at €21.60 at the time of writing, positively contributing to the fund’s performance. While the managers no longer feel the company is undervalued, they believe it could grow further and have maintained their position.

Recent stock selection has resulted in a bias to companies within Europe, although the fund has no exposure to Greek stocks as the managers feel share prices are more affected by political manoeuvrings than company fundamentals. The managers also favour Japanese stocks as they feel valuations are attractive.

Elsewhere Wal-Mart Stores has detracted from performance as US sales grew more slowly than expected and currency movements eroded profits. Despite this recent setback, it has been a profitable stock for the fund, rising 78% since its addition to the portfolio in October 2006. The managers continue to believe the company is valued too cheaply as they feel sales will grow in the future, increasing the company’s profitability. There are of course no guarantees and past performance is not a guide to the future.

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Our view on this fund

Since launch, the fund has risen 90.4%* compared with 50.5% for the IA Global sector and 72% for the MSCI AC World index. While the fund outperformed the index strongly in its first year, subsequent performance has been less consistent. Given the approach taken by Alastair Mundy and Mark Wynne-Jones, poor performance over short periods while they wait for their positioning to pay off is to be expected. However, our analysis suggests poor stock selection has hampered returns. Past performance should not be seen as a guide to future returns. The fund manager has the flexibility to use derivatives which adds risk.

Performance of the Investec Global Special Situations Fund relative to the MSCI AC World Index since launch

Performance chart

The Investec Global Special Situations Fund is shown relative to the MSCI AC World Index. When the line is rising, the fund is outperforming the index and underperforming when the line is falling. Lipper IM to 03/08/2015.

Annual percentage growth
Aug 10 -
Aug 11
Aug 11 -
Aug 12
Aug 12 -
Aug 13
Aug 13 -
Aug 14
Aug 14 -
Aug 15
IA Global 13.21% -3.0% 25.13% 2.2% 12.03%
MSCI AC World 13.06% 1.4% 26.11% 3.24% 11.65%
Investec Global Special Situations 10.36% -3.32% 26.75% 2.78% 15.86%

Past performance is not a guide to future returns. Source Lipper IM* to 03/08/2015.

We are not currently considering the Investec Global Special Situations Fund for inclusion on the Wealth 150 list of our favourite funds across the major sectors. We have greater faith in other global funds to outperform their benchmarks more consistently over the long term.

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.

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.

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