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magazineRecovery funds firmly out of fashion as leading manager exits
Last week saw a changing of the guard at fund group M&G (MNG) with Tom Dobell, a 28-year veteran of the firm, stepping down from the M&G Recovery Fund (3128921) which he had managed since 2000.
As per its name the fund invests in ‘value’ stocks in the hope that they will recover. It had a good August 2020 thanks to gains in some of its healthcare stocks, but has lagged the FTSE All-Share index over every time period from one year to 10 years.
In a review of its products and pricing in July, M&G acknowledged that the £1.4 billion Recovery Fund offered poor value for money for investors. ‘The fund has consistently fallen short of its performance target, and we have determined that action must be taken to ensure it is better placed to achieve its objective going forward.’
The M&G news comes on the heels of a change of manager at Aberdeen Standard Investments’ UK Recovery (B6S67S8) after it incurred heavy losses in the first five months of the year, making it the worst performing fund in the Investment Association’s UK All Companies sector.
Multi-asset managers at Premier Miton Group (PMI), who held a stake in the UK Recovery fund, sold out citing ‘disappointment’ with the holding and calling the change of manager ‘the straw that broke us.’
All of which raises the question, are recovery funds in decline across the board and if so what should investors do?
The good news is some special situations funds – which follow a similar ‘recovery’ approach, buying companies with short-term problems but solid long-term prospects – have a better track record than recovery funds.
According to FE Analytics, two of the top three performing funds between the start of June and the middle of this month – when the FTSE All Share was down 5.3%, so before 21 September’s sharp fall – were MFM Techinvest Special Situations (B0BB227) and Marlborough Special Situations (B907GH2) with gains of 10% and 8.8% respectively.
Both invest in smaller companies, which have held up better than large companies of late – over the same period the FTSE Smaller Companies index gained 0.2% while the average fund in the IA Smaller Companies sector returned 3.1%.
Larger-cap funds with respectable long-term track records include Artemis UK Special Situations (B2PLJQ0), Jupiter UK Special Situations (B4KL9F8) and Liontrust Special Situations (B57H4F1).
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