Why I’ve put my inheritance in M&G Recovery

FE Trustnet’s Mark Smith explains why he has bought Tom Dobell’s top-performing equity fund to tuck away some money for the future.

By Mark Smith, Senior Reporter, FE Trustnet
Sunday July 08, 2012

Very few people in their early-20s can afford to worry about the world of investment.

With more than one million unemployed 16- to 24-year-olds in the UK and many struggling to pay off student debt, the chances of people in this age group putting money to work in the stock market are pretty low.

It is also true that few asset managers or financial advisers focus much of their time or resources marketing to this demographic, and if they did they could probably expect to be met with blank faces.

However, it is not unusual for young people to have to suddenly revisit their finances following the unexpected death of a grandparent. I found myself in this position recently and after paying down my debts I was left with a small sum to invest.

With time on my side, my first thought was to buy a fund with exposure to a particularly racy growth story. Funds such as JPM Natural Resources, Templeton Frontier Markets and Aberdeen Global Asian Smaller Companies are all highly volatile but have the potential for high returns over the long-term.

However, at 24 and working in my first job since graduating from university, my future is far from certain.

Right now I am dizzyingly out of reach of the ridiculous prices demanded of London property, but there are other considerations: I may lose my job or need to save for a big purchase or wedding.

I can, therefore, ill afford to risk losing the tiny bit of spare cash I have by rolling the roulette wheel in the world’s riskiest markets.

The advantage of investing in the UK is that I will always have a feel for what the economic climate is like, how businesses are doing and, with half an eye on the FTSE every day, I can look out for opportunities to add to my holding or take some profits.

At the start of the year I would have gone for a more aggressive fund such as AXA Framlington UK Select Opps or Stan Life Inv UK Equity Unconstrained.

However, with more uncertainty over the future of the economy, I’ve decided I need something that offers me the chance to perform well should the markets return to growth but will also keep hold of some of that profit if they nose-dive.

ALT_TAG

This is why I’ve plumped for the £7.4bn M&G Recovery fund.

FE Alpha Manager Tom Dobell (pictured) invests in companies that are either unloved by the stock market or are going through a period of managerial or structural change and sells them again once they reach a price that reflects what he believes to be fair value.

He told me when I met him in May that he anticipates a boost to the fund when some of his recovery stocks become the targets of merger or takeover bids from cash-rich companies when the economy improves.

The numbers are very, very good and the process has been proved to work over the long-term. M&G Recovery is a top-quartile performer over five and 10 years and has beaten the market in 11 of the last 12 calendar years.

Performance of fund vs sector since 2002

Name	2011 returns (%)	2010 returns (%)	2009 returns (%)	2008 returns (%)	2007 returns (%)	2006 returns (%)	2005 returns (%)	2004 returns (%)	2003 returns (%)	2002 returns (%)
M&G - Recovery	-6.29	16.49	40.87	-27.53	12.48	20.7	26.62	13.61	28.09	-18.59
IMA UK All Companies	-7.04	17.53	30.4	-31.96	1.85	17.38	20.86	12.68	21.84	-23.31

Source: FE Analytics

Despite the outperformance, the fund hasn’t taken on too much undue risk. Its annual volatility scores over three, five and 10 years are only marginally higher than those of the average fund in the UK All Companies sector.

Dobell also has a higher Alpha score than the vast majority of his competitors.

Aside from the impressive numbers, I also like the fact that Dobell only runs one fund, meaning that he can commit all of his time and resources into thinking about what he is going to do with my money.

Tweet this article
Print
Email

Add your comment

Step 1: Tell us what you think...

Step 2: Prove you're not a robot...

	You don't have to do this every time you submit a comment. Login or register free and you won't see it again.
Enter the words above:


Step 3: Submit your comment...

Jegersmart Jul 09th, 2012 at 11:39 AM

I am not sure that the current biggest holdings in M&G Recovery are "unloved" by the market.......? Good track record though, although if I was looking at the very longer term I wouldn't necessarily think that the UK will offer the best opportunities.....imho

J

DavidStephen Jul 08th, 2012 at 08:58 PM

People thought they could trust Bernie Madoff Kim.

I'm not for one minute suggesting that Tom Dobell is going to run off with the money but it is facts that one should look at not personalaties.

Gerry Jul 09th, 2012 at 12:35 PM

Perhaps you should put more energy into spelling and less into patronising women David.

DavidStephen Jul 09th, 2012 at 06:13 PM

As you know so much about spelling Gerry you should know that Kim can be male or female as can Gerry!

Kim Lee Jul 08th, 2012 at 07:56 PM

I think some of you could be losing sight of one very important element of Mark's reasons for choosing this fund - he met the manager and obviously felt that he could trust him with his money.

Scrooge Jul 08th, 2012 at 07:40 PM

Just when Bestinvest have downgraded due to concern about the size of the fund. I agree with Theo too, 10 year look back performance changes with random variation by the day, affect both the "best" and also the "dog funds" depending on the chosen day yet attract much uncritical parrot fashion copy.
Surely at 24 what really matters most is something that's a low cost, low in portfolio turnover, non-commission paying vehicle which would favour an investment trust over a unit trust type of fund. One way or another it should cover global market changes, have some exposure to smaller companies, and be covered by the FSA for your security, which would favour a steady broad-based investment trust rather than a low cost ETF. I've just sold my Caledonia, it's too exciting.

Del Coop[ Jul 08th, 2012 at 07:33 PM

Probably not a bad iedea - at his age - but not necessarily suitable for those of us maybe 3 times his age. What about one of the ITs with log, good track records and low cost6.

Chand Jul 08th, 2012 at 04:57 PM

As a small private investor my view is:
ALthough it sounded like long term investment there is no mention of how many years.
Level of risk not in detail
Managers retire/get poached and go through a long bad period.
Since M&G Rec.is there since 1969 "since launch" performance is misleading.
On a 10 year time scale a quick look shows 6 better funds. Unless exit time is set like pension funds does volatility matter? Are geographical and sector spread not more important?
A mixed asset fund like Milton would be my choice.

Annualised Performance since launch
Instrument 10y Since Launch Date
Launch
Lindsell Train 11.6% 8.7% 23/01/2001
IT plc
Murray Int.Trust10.1% 6.4% 24/07/1995
Personal Assets 7.5% 9.0% 24/07/1995
Fidelity Money 5.1% 6.2% 13/09/1995 builder Income
McInroy & Wood 11.5% 10.0% 7/03/2001 Smaller Companies
CF Milton Special9.9% 9.9% 31/12/1997 Situations Portfolio
Finsbury Growth & 12.1% 8.7% 24/07/199 Income Trust
Jupiter Merlin 7.5% 8.1% 01/10/1992 Inc.
AXA Framlington 10.7% 9.1 01/06/1992 UK Select Opps
M&G Recovery 9.6% 15.0% 30/05/1969
Stan Life - 1.5% 28/02/2007
UK Eq.Inc

DavidStephen Jul 08th, 2012 at 01:56 PM

Sadly another recommendation that has no substance.

M&G Recovery's performance is getting worse.

Out of the 284 UK All companies listed it is:

36th over 5 yrs
109th over 3 yrs
202nd over 1 yr
271 over 1 month.

Supercal Jul 08th, 2012 at 01:34 PM

Given that you have already told us that you do not own the place in which you reside (i.e. pay RENT) are you priorities right on this one Mark?

Risk score Jul 08th, 2012 at 11:37 AM

So you promote your risk score as an accurate measurement of risk, but then take your decision to decline the "highly volatile" Aberdeen Global Asian Smaller Companies (with risk score of 72), in favour of the "safety" of a fund with a risk score of 110.

Ilmarinen Jul 07th, 2012 at 03:39 PM

Personal testaments are always interesting - thank you for venturing yours. I found myself wondeing why only one fund. That may be to do with the amount, and of course that is indeed not necessarily for publication. I also wondered about the decision to avoid SE Asia where growth can be anticipated.

Theo Jul 07th, 2012 at 02:25 PM

I wish we could have calendar 10-yr performance records like this one for every fund discussed by TN. They are standardised and never change. The cumulative data should be based on them too.

Rolling 12 month periods should not be called "years" and together with the cumulative data based on them change every day and are virtually useless. They are only used by fund managers (no other industry) because of their power to confuse (confusion marketing as used by utility suppliers) and because by choosing the right time and period, almost any of their funds can be shown to be winners.

Mickey Jul 07th, 2012 at 11:16 AM

Interesting choice although for the long term I would have chosen something like Wordlwide Healthcare (WWH) or another Investment Trust that should outpace M&G Recovery over the longer term.

As a predominantly UK invested fund it will be interesting to see how it compares long term to the likes of TIGT or PLI, a lot of commentators do rate M&G Recovery very highly so you are potentially on safe ground whilst avoiding the excitement of holding something such as an emerging market fund or even my current roller coaster Caledonia (CLDN)