An increasing number of industry experts are pointing to improving macro indicators both at home and abroad as evidence that the UK is finally on the road to recovery.
In a recent interview with FE Trustnet
, Rathbones' chief investment officer Julian Chillingworth said the domestic sector was beginning to look more positive than it has done for some time, which he believes makes an interesting case for a recovery-focused fund.
These portfolios target companies that have struggled but that the manager believes have a catalyst for change.
This could be in the form of a management takeover, a sudden decrease in competition, or a structural shift that makes a previously out-of-favour sector or company look more attractive.
A fund that has a specific focus on recovery stocks will have more upside potential than the majority of its rivals. Here are five for any investors who believe the UK is on the mend and want to up their domestic exposure.
According to FE data, there are a dozen UK-focused recovery funds in the IMA universe, excluding those that define themselves as “special situations” portfolios.
By far the largest and highest profile of the 12 is Tom Dobell’s £7.6bn M&G Recovery, which Rowan Dartington’s Tim Cockerill (pictured)
says would be his choice.
"It is a fund I have supported for a long time and Dobell has a good record," he commented.
"He uses a conveyor-belt approach where he picks up companies that are down on their luck, but not broken, and he looks for a catalyst for change."
"He is a long-term manager who doesn’t work to a benchmark. Although he has had a tough time of late, if you were to invest in him now you could look back in five years and say what a good decision that was," he added.
The fund has delivered top-quartile performance over five and 10 years, but has slipped into the bottom quartile over one and three.
Performance of fund vs sector and index over 10-yrs
Source: FE Analytics
M&G Recovery has one of the best long-term records of any fund in the IMA UK All Companies sector.
Over 10 years it has returned 192.07 per cent, compared with 121.44 per cent from its FTSE All Share benchmark and 108.97 per cent from its sector. Only 11 UK All Companies portfolios have returned more.
In notable rising markets such as 2003 and 2009, the fund has consistently outperformed its sector and benchmark.
M&G Recovery, which was launched in 1969, is underweight in financials and services but is overweight oil & gas and industrials. FE Alpha Manager Dobell counts BP, Royal Dutch Shell, Tullow Oil and Kenmare Resources among his top-10 holdings.
The fund has a total expense ratio (TER) of 1.65 per cent and a minimum investment of £500.
Neil Shillito, director at SG Wealth Management, believes that the Schroder fund is very popular among investors due to its management team.
"We don’t use Schroder Recovery, but that is saying nothing against the fund," he said.
"It is a favoured fund and I was looking at its results the other day and it has produced excellent performance recently."
"It has had good consistency over the years and is very well led."
Schroder Recovery, which is co-managed by Kevin Murphy and Nick Kirrage, has significantly outperformed its benchmark and sector over a five-year period.
According to FE Analytics
, it has returned 28.43 per cent while the FTSE All Share index has returned 6.67 per cent and the sector 3.32 per cent.
Performance of fund vs sector and index over 5-yrs
Source: FE Analytics
The £270m fund boasts top-quartile performance over one, five and 10 years.
Schroder Recovery is slightly underweight financials, but has a significant exposure to banks, holding Barclays and RBS in its top-10.
It has a minimum investment of £1,000 and a TER of 1.52 per cent.
MFM Slater Recovery
Shillito thinks investors are in safe hands with this fund's manager, Mark Slater, despite his benchmark-unaware approach to investing.
"Mark is a great guy and a maverick. When I say maverick, I don’t mean he makes silly bets on his stocks but I mean he has strong views on what he is investing in," said Shillito.
"He has firmly-held views and is a great high-conviction investor who won’t invest in areas he doesn’t see value in."
"Why should you be a fund manager if you don’t have a strong investment conviction?"
The £34.5m fund’s performance has fluctuated since its launch in 2003.
It has underperformed its IMA UK All Companies sector and the FTSE All Share since this time, thanks largely to its dreadful run in 2007 and 2008.
However, it has a stellar record in rising markets,
beating both its sector and benchmark in 2004, 2009 and 2010.
The fund has returned 121.28 per cent while the index and sector have returned 156.13 per cent and 136.85 per cent respectively over the same period.
MFM Slater Recovery has a TER of 1.56 per cent and demands a minimum investment of £3,000.
Shillito does not use this fund himself, but he likes Rathbones and the managers at the group.
According to FE Analytics
, the £61.2m Rathbone Recovery fund is a top-quartile performer over one and three years, as well as since its launch in July 2009.
Rathbone Recovery is heavily overweight in industrials compared with the IMA UK All Companies sector.
It is predominantly invested in mid caps – an area of the market that co-managers Marina Bond and Julian Chillingworth think offers the best opportunities for growth.
It includes Booker, Melrose and Paddy Power in its top-10.
The fund has a TER of 1.64 per cent and a minimum investment of £1,000.
Standard Life UK Equity Recovery
The £27.3m Standard Life UK Equity Recovery fund has been headed up by David Cumming since its launch in 2009.
It is the most volatile of those mentioned in this piece, illustrated by its very poor run last year, when it lost almost 30 per cent.
However, it is a portfolio full of cheap stocks and may be of interest for those who are particularly bullish.
Since the fund’s launch, it has returned 124 per cent, compared with 86.22 per cent from its IMA UK All Companies sector. However, it has fallen short over one and three years.
The fund is overweight banks, with Lloyds and Barclays as it two largest holdings, making up 11.4 per cent of total assets. It also has top-10 positions in RBS and Dixons.
Standard Life UK Equity Recovery has a TER of 1.72 per cent and a minimum investment of £100.