The £7.1bn fund is one of the largest and highest-profile UK equity funds in the market, but has suffered significant outperformance of late, pushing it into the bottom quartile of its IMA UK All Companies sector over one and three years, and third quartile over five.
M&G Recovery remains a top performer over the last decade, though it lost its place at the very top of pile long ago.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
This underperformance has led to significant redemptions of late: according to FE data, investors have pulled just over £900m from M&G Recovery in the last 12 months. Only Schroder UK Alpha Plus, which was recently hit by Richard Buxton’s departure, has seen more in the way of outflows.
While acknowledging some mistakes, Dobell points to the risk-on/risk-off environment as being one of the principal reasons for his underperformance, during which time company fundamentals were largely being ignored. He thinks this is beginning to change, however, which should suit his investment style much better.
Dobell (pictured) says he is heartened by early signs of growing investor confidence. He thinks the increase in IPO and M&A activity will have a positive effect on the market as a whole and his fund in particular, which has historically benefited from this kind of environment.
"We are confident that the foundations for future success for the fund are being built," he explained.
"I believe the value within the businesses will be realised through materially higher share prices and that a substantial ‘value gap’ exists in many of the companies we hold."
The manager points to three holdings that have already seen a change in fortune: easyJet, Pace and Regus.
"easyJet was the star performer over the past year," he said. "[I] worked closely with the company’s management team and other shareholders to support the development of the business."
"The group entered the FTSE 100 index in March 2013, bringing it to the attention of a broader investor base."
According to FE data, easyJet is one of the best-performing FTSE 100 stocks of the last year, with returns of 105.76 per cent.
Performance of stock over 1yr
Source: FE Analytics
FTSE 250 companies Pace and Regus have also started to perform strongly, after a sustained period of underperformance.
"Pace is seeing the benefits of the strategic plans laid out by the new management team at the end of 2011," he said.
"Regus is reaping the prolonged rewards of its investments in its business."
Both easyJet and Regus are top-10 holdings for M&G Recovery, with weightings of 2.8 and 2.1 per cent, respectively. Pace is a much smaller holding, though is still among the 30 biggest companies in the portfolio.
Tom Dobell is the second M&G manager in the space of a few hours to talk out about his underperformance, following Graham French’s apology earlier today with regard to his M&G Global Basics fund.
Patrick Connolly, head of communications at Chase de Vere, has hung on to the fund and will continue to do so.
He says M&G Recovery is the kind of fund that needs to be given time, as the stocks Dobell holds are long-term plays.
"We don’t just sell a fund because it underperforms, we look to understand why a fund is behaving in the way it does," Connolly said.
"The approach hasn’t been in favour for some time, but you should know when buying a fund like this that there will be periods when it doesn’t do as well."
"It has a lot of companies in it that the manager is very confident about. They are long-term holdings, so it’s very difficult to predict when they will come good."
M&G Recovery requires a minimum investment of £1,000 and has ongoing charges of 1.65 per cent.
