The manager targets unpopular firms that have recently gone through a period of underperformance and that are underrated by the core market. The process has worked well for the manager since he arrived at Investec in August 2002; according to FE data, Mundy has returned 99.1 per cent in the last decade, compared with 44.43 per cent from his peer group composite.
Here is a selection of stocks he is currently backing:
Signet Jewelers
"This is a market leader in the US in the special jewellery market," said Mundy. "In the UK it owns the likes of Ernest Jones and H Samuel. It is Bermuda-domiciled, but also has listings in the UK and US."
"The industry went through a really tough time, but whereas now many of its peers are reducing their number of stores, Signet Jewelers is going from strength to strength and now has a stronger market position as a result."
"We bought it back in 2006 and went through a period of hell initially [due to heavy losses in 2008]. However, it has now made back these losses and we think it has still got a long way to go before it reaches its peak."
Signet Jewelers is a top-10 holding in Mundy’s Investec Special Situations, Investec Cautious Managed and Temple Bar portfolios.
HSBC
Like all of the banks, HSBC endured a difficult 2008 and 2011, losing 16.11 and 21.26 per cent respectively. However, Mundy believes the company’s decent yield and potential for recovery growth make it a worthwhile investment.
"I find it strange that everyone automatically dismisses banks as a terrible investment when the very same people were big fans of them back in 2007 when they were terrifically overvalued and far more risky," he said.
Performance of company vs index over 5-yrs
Source: FE Analytics
"I currently don’t hold any UK banks except for HSBC, but never say never. I like this company because it has got a much better balance sheet and its ratio of deposits to loans is much stronger. There are far fewer things that are likely to go wrong than the others, but there is still plenty of potential for growth."
Housebuilders
This area is perhaps Mundy’s highest conviction sector play. In the Special Situations portfolio, the manager holds Travis Perkins and Grafton in his top-10, as well as Kingspan and SIG in his top-20. All four of these are builders merchants.
"With the building construction cycle where it is, nobody is interested in this type of company," said Mundy. "However, everything has its price. All the negativity is more than compensated for by exceedingly low prices. These are the best in class and survived while a lot of their competitors have fallen."
According to FE Analytics, all four of the companies have lost in excess of 50 per cent in the last five years. The worst performer is SIG, which sells insulation materials, and has lost 93.12 per cent over the period.
Performance of stocks over 5-yrs
Source: FE Analytics
"I like all of them in different ways, but I wouldn’t necessarily put one higher than the other," Mundy added.
GlaxoSmithKline
This is far more popular with fund managers than Mundy’s other picks, but he still thinks its potential is largely unrecognised.
"It’s got a decent yield, a strong balance sheet and its new management team look to be shaking things up a little bit," he explained.
When a company goes through a tough period, Mundy believes that very often the management goes through a stage of denial. When this period comes to an end, he sees this as a sign that the company could be set for a change in fortune.
"The pharms industry has hardly covered itself in glory in recent years with the sparse number of new drugs to market, but there are signs that Glaxo is making changes to its research and development process," he added.
The company is the second-biggest holding in both Investec Special Situations and Temple Bar, with a 6.8 and 8 per cent weighting respectively.