Performance - 31 January 1995 to 26 March 2010
Source: Financial Express Analytics
Style and Strategy
Dobell calls on the knowledge and experience of M&G’s equity analysts and other fund managers to help identify possible investment opportunities in companies suffering from either operational or financial distress, although a combination of the two is ruled out on the grounds of being too risky. Once potential companies have been identified, substantial research is undertaken, including Dobell going to visit the company and get a thorough understanding of their business, no investments are made unless this criterion is satisfied. Once Dobell is satisfied the company’s problems are solvable he will often take a sizeable stake in the firm and takes an active role as a major shareholder, assisting management in turning things around by applying his and his team’s extensive experience of recovering companies as well as drawing on the expertise of M&G’s credit and corporate finance specialists to aid in restructuring if necessary. M&G split recovery into four separate phases, covering a firms decline, stabilisation, recovery and return to normal. Dobell weights the fund towards stocks in the first two phases, as these represent the most potential growth, but remains diversified across all four to reduce the fund’s risk.
Holdings and Breakdowns – as of 28 February 2010
| Name | % Weighting |
| TULLOW OIL PLC | 6.10 |
| HSBC HLDGS | 5.80 |
| ROYAL DUTCH SHELL B ORD | 5.10 |
| GLAXOSMITHKLINE | 5.00 |
| BP | 4.70 |
| VODAFONE GROUP | 3.50 |
| UNILEVER | 3.20 |
| FIRST QUANTUM MINERALS | 2.60 |
| INVENSYS PLC | 2.10 |
| NATIONAL GRID | 2.10 |
| Top 10 total percentage weighting | 40.20 |
| Sector Breakdown | % Weighting |
| OIL & GAS | 20.20 |
| BASIC MATERIALS | 13.30 |
| INDUSTRIALS | 12.70 |
| OTHERS | 10.70 |
| FINANCIAL | 9.40 |
| HEALTH CARE | 7.90 |
| SERVICES | 7.90 |
| UTILITIES | 6.40 |
| MONEY MARKET | 6.00 |
| CONSUMER PRODUCTS | 5.50 |
The fund is benchmarked to the FTSE All Share index although it is not managed with any specific index constraints and traditionally has varied significantly; the fund has a lower correlation to the index than is the norm for the UK All Companies sector. The fund’s philosophy of focusing on recovery stories naturally leads it to deviate in composition, over the last ten years the fund has exhibited almost double the tracking error of the sector average. Specifically it has a bias towards small and midcap stocks although maintains a broad diversity across the market cap spectrum to minimise risk. Additionally the fund has comparatively low turnover, with the manager holding stocks for on average three to five years in order to realise their potential.
What to Expect
The fund’s strategy gives it a slightly higher than average risk profile than both the index and the IMA UK All Companies sector average. Recovery stocks are inherently more volatile than their peers, especially in the short term, and this is evident in the funds risk levels over both the long and short time periods. The increased risk is only slight and has historically been rewarded by much greater performance; the fund has been one of the best performers on risk adjusted measures such as Sharpe ratio, where it has been in the top ten funds in the sector over both three and ten year periods. Additionally, Dobell’s stock selection and deviation from the index have been highly successful with high information ratios and alpha showing Dobell has added significant value to the portfolio regardless of market movements.
Suitability
Recovery investing is slightly more risky than a broad market strategy, and the fund’s slightly higher risk levels may deter some investors. The additional risk is only slight however, as of 28 February 2010 the fund’s annualised volatility had been just one percentage point higher than the sector average over ten years. The fund’s sustained outperformance is likely to be more than enough to justify the additional volatility, although it is perhaps not ideal for investors with shorter time horizons due to the medium to long-term focus of the funds investment strategy.
AFI Comment
“This a fund we’ve had on our leader panel for some time now and it’s a core UK fund for us. We like that it is slightly different to other funds with a low turnover of both stock and managers. Dobell has a good solid process and engages heavily with companies to help them through the recovery process profit from them coming out the other side,” says Juliet Schooling Latter, Chelsea Financial Services.