Dobell claims the process behind his £7.8bn M&G Recovery fund is simple: buy stocks when nobody else wants them and sell them when they are popular again. He says that the important thing about the process is that it requires courage in his convictions and patience. "We stick with companies through thick and thin provided the management is doing a good job," he commented. "It takes a long time for companies to recover and for the market to recognise value. We’ve got a lot of ideas at the first stage on the road to recovery that are yet to kick off."
The recession, as well as turmoil caused by crises in the eurozone, has spooked investors away from risky equity markets but Dobell warns that these same investors will be left behind when companies regain confidence in the economy. The catalyst for dramatic stock market returns could be just around the corner.
"What we haven’t seen is any M&A activity. Last year there were no completed transactions from companies we hold and this year we’ve had only one," he explained.
"Corporations have handled the downturn much better than governments and sooner or later boards will want to re-gear."
The message about the long-term has filtered down to the fund’s investors. The average holding period for unit holders in M&G Recovery is 20 years and the manager says that most liquidations happen in the case of an investor’s death.
M&G Recovery has beaten the market in 11 of the 12 calendar years that Dobell has been in charge. Data from FE Analytics shows that the fund has returned 119 per cent over the last decade compared with 56.24 per cent from the FTSE All Share index.
Performance of fund vs benchmark over 10-yrs
Source: FE Analytics
It has also significantly outperformed over three and five years, albeit with more volatility.
Despite the consistent outperformance Dobell is not one to blow his own trumpet:
"Forget the performance, it’s in the past, it’s gone," he said. "What matters, like in cricket, is the next ball."
Launched in 1969, the fund is one of the most established funds still currently active in the open-ended universe. The long-term record affords the manager certain advantages when it comes to company research.
"The phone never stops ringing from companies that have problems. Three or four of our latest investment ideas actually came to us," Dobell continued.
The manager’s reputation for turning around businesses clearly precedes him but that doesn’t mean he jumps at every one that is struggling.
"We have, for a long time, been very cautious on financials and I don’t see any reason to change that," he said. "The only one I’d cross the road for is HSBC and the others can wait outside the backdoor as far as I’m concerned."
"We don’t buy banks because their accounting is impossible to understand. There are 50 other companies I could invest in that are much easier to understand."
While the investment process is simplistic, investing in recovery companies going through hardship is not without its difficulties.
"We get more profit warnings than anyone in the market because we’re buying some of the riskiest stocks out there," said the manager. "When we get things wrong we take our medicine but I’ve got a thick skin and a sense of humour."