Mark Dampier: Keeping things simple pays off for investors with M&G

The Analyst

Within the financial industry there seem to be constant calls for simple products that investors can understand. I am always intrigued by this. Unit trust funds, which have been around for decades, are relatively simple. Although the underlying investment process is hard to follow for some funds, there are also plenty of long-term, straightforward strategies. One example is M&G Recovery.

The fund was launched in 1969 and has been managed by only three individuals since, all of whom have maintained the same philosophy. The current fund manager, Tom Dobell, has been at the helm for 12 years, and sees no reason to change what has been a successful strategy: simply put, M&G Recovery looks to buy unloved businesses that have experienced setbacks, but with patience can be nursed back to health. Such companies, due to their chequered past, often have exceptionally low valuations, meaning any improvement in their situation can mean a large rise in share price.

However, a turnaround is never guaranteed. Inevitably, some businesses that get into difficulty go bust. Through his process of getting to know company management and working out whom he can trust to deliver, Mr Dobell aims to minimise these cases. In his portfolio of some 100 holdings, he says it averages one a year. When it happens it is always disappointing, but it is all part of investing in this area of the market. What he aims to do is ensure a good spread of assets, and that his winners more than make up for the losers.

Adopting this approach is clearly a game of patience, something many investors today are lacking. Yet time and time again I find the best fund managers are those who take a long-term view and where turnover on the fund is very low. Mr Dobell looks at a five-year timeframe, though he has had many companies in for much longer than this. He also looks to be a constructive and supportive shareholder, but not one that will unduly interfere with the business.

The long-term nature of the fund can be seen in the variety of companies that make up the portfolio: around a third is in stocks such as Tullow Oil and Aggreko that have already recovered and are delivering good results for investors. The remainder of the fund is invested in companies that are at an earlier stage of the process. Examples include the Irish building materials supplier Kingspan, and HomeServe, a company that sells emergency repair services to households. In both cases the firms have been beset with problems in their domestic businesses, but Mr Dobell sees great potential in the expansion of their overseas operations.

Another feature of the fund is exposure to less well-explored parts of the market. Several stocks listed on the Alternative Investment Market (Aim), the junior market of the London Stock Exchange, are included, notably in energy and natural resources. Listing requirements are less stringent on Aim, so some investors treat stocks listed here with suspicion. However, Mr Dobell points out some companies choose Aim because it is less expensive. Some of these firms are large enough to be in the FTSE 250 and he believes there are outstanding opportunities.

Over the long-term, fund performance has been outstanding. Since 2000, when Mr Dobell took charge, the fund has risen by 121 per cent, vs 38 per cent for the UK sector.

However, more recently the fund has struggled, lagging its peers in 2011 and so far this year. This can be attributed to the outperformance of defensive, blue-chip stocks which have become fashionable with investors due to the stability of their earnings. The fund holds none of these – they are not recovery stocks. Also, the fund has no bank shares, which have also done well in 2012. This might surprise you as they would seem prime candidates for recovery. But Mr Dobell doesn't sufficiently trust management and argues their future is not in their own hands.

It is refreshing to reconsider this fund's enduring, simple approach. It has stood the test of time, and I believe it will continue to do so. A further attraction is the possibility for merger and takeover activity among the fund's holdings.

Companies have been generally loath to spend cash given the current uncertain economic climate, but at some stage this is likely to change as they start to recognise the value in their competitors.

Undervalued, unappreciated companies tend to make natural targets, so this fund would be a natural beneficiary of any upturn in activity.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent

Sport
Brazilian fans watch the match for third place between Brazil and Netherlands
world cup 2014Brazil 0 Netherlands 3: Dutch pile on the misery in third place playoff
Sport
Robin van Persie hands his third-place medal to a supporter
Van Persie gives bronze medal to eccentric fan moments after being handed it by Blatter
News
Ian Thorpe had Rio 2016 in his sights
people
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

PROMOTED VIDEO
News
scienceScientists have developed a material so dark you can't see it...
News
Monkey business: Serkis is the king of the non-human character performance
peopleFirst Gollum, then King Kong - now the actor is swinging through trees in Dawn of the Planet of the Apes
Arts and Entertainment
Blackman: Landscape of children’s literature does not reflect the cultural diversity of young people
booksMalorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Voices
Mrs Brown's Boy: D'Movie has been a huge commercial success
voicesWhen it comes to national stereotyping, the Irish know it can pay to play up to outsiders' expectations, says DJ Taylor
Arts and Entertainment
Curtain calls: Madani Younis
theatreMadani Younis wants the neighbourhood to follow his work as closely as his audiences do
Life and Style
Douglas McMaster says the food industry is ‘traumatised’
food + drinkSilo in Brighton will have just six staple dishes on the menu every day, including one meat option, one fish, one vegan, and one 'wild card'
Life and Style
Once a month, waistline watcher Suran steps into a 3D body scanner that maps his body shape and records measurements with pinpoint accuracy
techFrom heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
Sport
Mario Balotelli, Divock Origi, Loic Remy, Wilfried Bony and Karim Benzema
transfersBony, Benzema and the other transfer targets
News
Soft power: Matthew Barzun
peopleThe US Ambassador to London, Matthew Barzun, holds 'jeans and beer' gigs at his official residence. He says it's all part of the job
Sport
Joe Root and James Anderson celebrate their record-beaking partnership
cricketEngland's last-wicket stand against India rewrites the history books
News
Gavin Maxwell in Sandaig with one of his pet otters
peopleWas the otter man the wildlife champion he appeared to be?
News
Rowsell says: 'Wearing wigs is a way of looking normal. I pick a style and colour and stick to it because I don't want to keep wearing different styles'
peopleThe World Champion cyclist Joanna Rowsell on breaking her collarbone, shattering her teeth - and dealing with alopecia
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Information Security Manager (ISO 27001, Accreditation, ITIL)

    £70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

    Biztalk - outstanding opportunity

    £75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

    Trade Desk Specialist (FIX, Linux, Windows, Network Security)

    £60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

    Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

    £35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

    Day In a Page

    Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

    How Saudi Arabia helped Isis take over northern Iraq

    A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
    The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

    The evolution of Andy Serkis

    First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
    You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

    You thought 'Benefits Street' was controversial...

    Follow-up documentary 'Immigrant Street' has got locals worried
    Refugee children from Central America let down by Washington's high ideals

    Refugee children let down by Washington's high ideals

    Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
    Children's books are too white, says Laureate

    Children's books are too white, says Laureate

    Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
    Blackest is the new black: Scientists have developed a material so dark that you can't see it...

    Blackest is the new black

    Scientists have developed a material so dark that you can't see it...
    Matthew Barzun: America's diplomatic dude

    Matthew Barzun: America's diplomatic dude

    The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
    Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

    Meet the 'Quantified Selfers'

    From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
    Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

    Five-star reviews are just the opening act for British theatre's first non-white artistic director

    Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
    Mrs Brown and her boys: are they having a laugh?

    Mrs Brown and her boys: are they having a laugh?

    When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor
    Gavin Maxwell's bitter legacy: Was the otter man the wildlife champion he appeared to be?

    Otter man Gavin Maxwell's bitter legacy

    The aristocrat's eccentric devotion to his pets inspired a generation. But our greatest living nature writer believes his legacy has been quite toxic
    Joanna Rowsell: The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia

    Joanna Rowsell: 'I wear my wig to look normal'

    The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia
    Bill Granger recipes: Our chef gives raw ingredients a lift with his quick marinades

    Bill Granger's quick and delicious marinades

    Our chef's marinades are great for weekend barbecuing, but are also a delicious way of injecting flavour into, and breaking the monotony of, weekday meals
    Germany vs Argentina World Cup 2014 preview: Why Brazilians don't love their neighbours Argentina any more

    Anyone but Argentina – why Brazilians don’t love their neighbours any more

    The hosts will be supporting Germany in today's World Cup final, reports Alex Bellos
    The Open 2014: Time again to ask that major question - can Lee Westwood win at last?

    The Open 2014

    Time again to ask that major question - can Lee Westwood win at last?