By Jenne Mannion Mercury and Legal & General recovery unit trusts are to retain their remits despite...
By Jenne Mannion
Mercury and Legal & General recovery unit trusts are to retain their remits despite a trend elsewhere in the industry to broaden the stock universe of recovery funds.
Fidelity and M&G announced last month they will include growth-style companies in their recovery portfolios, in addition to more traditional investments, such as undervalued, out-of-favour companies which show the potential for re-rating.
Fidelity is changing the name of its recovery fund to the Fidelity Aggressive to reflect its wider investment mandate, while M&G will retain the Recovery name.
Steven Thompson, who took over as manager of Mercury Recovery from Paul Harwood who retired in April, said the portfolio would continue to buy only recovery stocks.
The fund is able to continue holding companies if the manager believes they are still undervalued and there is potential for further recovery. It will not hold companies once they are deemed growth stocks.
Meanwhile, more medium and large cap companies are being added to the portfolio at the expense of smaller companies, reflecting Thompson's investment style.
Thompson said although the investment remit had not altered, he tended to favour mid and large cap companies over Harwood's bias toward smaller companies, and this was being reflected in the portfolio.
There is no set minimum market cap for the companies that Thompson is buying, although the general trend is toward larger stocks. The fund's weighting outside the FTSE 100 is still in excess of 50% although this level is reducing.
Neil Newbery, who is now the sole manager of the Legal & General Recovery Trust, following his former co-manager Lesley Chorely's recent departure, also has no plans to change the investment remit of his portfolio.
He said: "We will continue to look for a number of criteria for example positive management change, financial reconstruction, acquisitions or disposals, good prospects but depressed ratings or product development. The fund does not invest in growth stocks, there are other products in the L&G stable for investors who are seeking growth."
Mercury Recovery has risen to 34 out of 299 funds in the UK All Companies Sector over the three months to 26 July on a bid to bid basis.
Over one year, offer to bid, the fund is ranked 206 out of 285 funds and over three years it is 137 out of 233 funds.
The improvement in short-term performance has resulted primarily from being underweight in technology, media and telecoms at the time of downturn in these sectors earlier this year.
Additionally, there had been a number of takeover bids among the UK smaller companies sector, which has benefited the fund.
L&G's £170m Recovery Fund is ranked 83 over three years and 128 over one year, offer to bid in the UK All Companies Sector, to 26 July.
Over three months the fund is ranked 106, bid to bid.
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