It has been a challenging few years for the M&G Recovery Fund. Over this time we have remained in close contact with Tom Dobell, the fund's manager, and have continued to provide clients with regular updates and our view on the situation.
In summary, over recent years many investors have favoured companies with greater certainty of earnings delivery, sometimes referred to as 'quality' stocks. These are the antithesis of the types of company the manager seeks at the point of purchase, instead focusing on turnaround situations that he believes are quality businesses at their core. These companies are often deemed as higher risk, but with greater potential for higher returns. Throughout this time Tom Dobell has continued to buy what many other investors have been discarding. Once these companies eventually return to favour, their share prices could benefit, but there are of course no guarantees.
Furthermore, the fund has suffered from a number of stock specific issues including certain resources companies held in the portfolio, which have been impacted by falling commodity prices. Investors should note that while the fund has a bias to larger companies, it also invests in higher-risk smaller companies.
In our view, the M&G Recovery Fund offers something different to its peers and we believe it remains a good choice in the UK All Companies sector. That said, the Wealth 150+ is reserved for funds we believe offer the ultimate combination of performance potential and low fund management costs. The fund's performance has been disappointing in recent years, while it is also the most expensive UK fund on the Wealth 150+ with an ongoing charge of 0.81%*. In the context of the recent performance, and in light of the fact we have identified other high-calibre fund managers for the Wealth 150+ on which we have negotiated lower fees for Hargreaves Lansdown clients, we do not believe this fee is justified. We therefore feel it is prudent to move the fund to the Wealth 150.
This is not a suggestion to make any changes to a portfolio, providing the fund continues to meet investors' objectives. We are encouraged that Tom Dobell maintains his long-standing investment strategy. We expect his strategy to come to fruition in the future and believe long-term investors will ultimately be rewarded for their patience.
We will continue to monitor the fund closely and will update investors if our views change.
*Please note the Vantage Service charge of 0.45% per annum also applies.
Read the key investor information document for the M&G Recovery.