- Fund represents an excellent opportunity for patient investors, in the manager’s view
- Many companies held by the fund continue to be overlooked by other investors
- We believe the manager’s investment style can bring valuable diversification to the UK portion of a portfolio
Investing in companies that have fallen upon hard times, but where there is scope for a transformation in fortunes, can be a good way to grow wealth over the long term. Of course, not every company will recover and some will fail altogether, which is why we feel this investment strategy is best implemented by an experienced investor.
Tom Dobell has used this style of investing throughout his 17-year tenure as manager of the M&G Recovery Fund. Within the fund he has the freedom to invest in companies of any size, including higher-risk smaller companies.
The manager has a good long-term track record, but periods of underperformance should be expected when it comes to recovery-style investing. Companies undergoing change can remain out of favour for some time, but we have faith in the manager to identify those with good prospects over the long run. We also remain encouraged the manager has never deviated from his tried-and-tested investment approach.
We believe the fund could bring essential diversification to a broader investment portfolio and, in our view, it is capable of producing strong returns over the long term, although there are no guarantees. The fund retains its place on the Wealth 150 list of our favourite funds in the major sectors.
How has the fund performed?
Aside from a few shorter periods of strong performance, such as in 2016, companies experiencing shorter-term difficulties have generally been shunned by investors in recent years.
Established, high-quality companies, perceived to be more secure, have generally been favoured and their share prices have benefited. The competitive dividends offered by high-quality companies have further propelled their popularity in a world of low interest rates. The manager does not invest in this type of company, and this has held back more recent performance.
Tom Dobell believes the companies within the fund have been disregarded by other investors, despite the fact they have the ability to turnaround their fortunes. He feels there is a lot of value on offer within these companies and once their potential has been more widely recognised, their share prices have the potential to perform exceptionally well. This is an approach that has proved successful over the longer term, although there are no guarantees of future performance.
|Annual percentage growth|
| Dec 2012 -
| Dec 2013 -
| Dec 2014 -
| Dec 2015 -
| Dec 2016 -
|M&G Recovery Fund||15.0%||-8.9%||-4.5%||20.7%||11.5%|
Past performance is not a guide to the future. Source: Lipper IM to 31/12/2017
Recent portfolio changes
Recent investments include BT Group , the communication services company. Shares in the company performed poorly last year amid increasing competition in the UK telecoms market. Tom Dobell believes the company now has the opportunity to reorganise itself and come back stronger, boosted by the appointment of a new Chairman and Financial Director.
The manager also purchased shares in engineering company Rolls Royce. The company suffered allegations of misconduct and bribery in early 2017 but Tom Dobell believes the worst of the issues are behind. He is supportive of the company’s CEO Warren East, who has proved himself to be a capable leader who manages companies in the interest of shareholders, according to the manager.
Mergers and acquisitions between companies have historically been beneficial for the fund. In recent years there has been little of this activity, but the manager feels it has picked up more recently. Four of the companies held in the fund have received takeover bids in the past year, including technology company Imagination, which was subsequently acquired by another firm. Each of these companies saw their share price rise.