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Fund of the week: Time to root for the underdog
Backing unloved stocks and waiting for them to recover is the secret to this fund's success.
How can investors make money in these tough times? One way is to back unloved stocks when they are cheap in the hope they will recover. At a time when consumers are crying out for simple financial products, says Mark Dampier in The Independent, a good example is the "straightforward" M&G Recovery Fund.
Since 1969, the fund has backed "unloved businesses that have experienced setbacks", but which "with patience can be nursed back to health". It's had only three managers in that time.
According to Trustnet.com, the £8bn fund has delivered a return of 15.6% over five years. Its recent performance has been patchier, notes Dampier. That's because it holds no banking shares, besides HSBC, and these performed well in 2012.Manager Tom Dobell "doesn't sufficiently trust management and argues their future is not in their own hands", says Dampier. It's a view we agree with.
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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Around 90% of the fund is invested in British and Irish firms, with 22.5% in oil and gas stocks, such as BP and Tullow Oil, 16.5% in industrials and 11.6% in basic materials stocks. Half of the fund is in large-cap companies, with the rest in recovering small or medium-sized firms, such as HomeServe, Mothercare and Kingspan.
"Mothercare is a classic recovery stock," Dobell tells Thisismoney.co.uk noting that while it is struggling on the high street, it has 100 stores in India. In the current downturn Dobell is spoilt for choice. "Although the economic environment remains difficult to predict we remain optimistic about the fund's prospects because the investment opportunities at a stock level are outstanding," he says on M&G's website.
Contact: 0800-389 8600.
M&G Recovery Fund
Swipe to scroll horizontally
BP
5.7
GlaxoSmithKline
5.3
Royal Dutch Shell
5.2
Tullow Oil
4.1
HSBC Holdings
3.9
Unilever
3.2
Prudential
2.5
National Grid
2.4
First Quantum Minerals
2.4
Kenmare Resources
2.1
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