M&G intends to alter the investment remit on its £1.35bn Recovery unit trust. The group is to write ...
M&G intends to alter the investment remit on its £1.35bn Recovery unit trust.
The group is to write to unit holders of the fund, which was taken over earlier this year, by Tom Dobell. This was done to allow previous manager Richard Hughes to concentrate on M&G's institutional portfolios and investment trusts.
Dobell wants to be able to hold onto stocks longer than he is currently allowed. The fund's objective is to invest in companies which are out of favour or in difficulty, and sell them following a re-rating or recovery. If the proposals are approved Dobell would be able to continue holding the stocks once they have recovered if he believed the share price was likely to carry on growing.
The group hopes by allowing Dobell to continue holding companies once they have recovered, the fund's performance will improve.
Over three years to 19 July in the UK All Companies peer group, the fund is ranked 171 out of 232 on an offer to bid basis. The period the fund rose by 29.5% compared to an average in the sector of 41.6%. Another proposed change to the objective is that the fund will invest primarily rather than exclusively in recovery stocks. According to John Hatherly, head of global analysis at M&G, by allowing the fund to hold non-recovery stocks the volatility of the fund should be reduced. Over the past five years the fund's annual total returns have ranged between 0.1% and 16.7%. The portfolio already has positions in companies which can be regarded as non-recovery stocks such as Vodafone Airtouch, Glaxo Wellcome and BP Amoco.
Hatherly stressed the recovery concept would remain the primary one in the fund's investment approach. He said: "This is a well tested formula which has produced good results for long term investors but shorter term returns have been volatile. The market environment has changed so we have had to slightly change the portfolio's remit. When the fund was launched the economic cycle was much steeper and shorter. It is now longer and more shallow."
Dobell has a small cap bias and is likely to take a wider view of the market, according to Hatherly. He said: "In the past the fund has had a bias towards industrials an area often connected with the recovery investment approach. But Tom will also look at IT companies which look like being re-rated."
Currently the portfolio is overweight both mid and small cap stocks and underweight blue chips. The funds largest overweight positions include Centrica and Saatchi & Saatchi.
In the late 1980s and early 1990s, M&G Recovery was a flagship fund for the group and was a strong performing fund. Since that time the returns have not been as impressive.
John Husselbee, director retail and multi-manager funds at Henderson Investors, said: "This was due to market sentiment turning away from value and small cap stocks and probably also the huge size of the fund."
The increase in minimum AE contributions has had little impact on opt-out rates - with cessations after April increasing by less than two percentage points, data from The Pensions Regulator (TPR) shows.
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