The ratio between the quality stocks relative price to book spread has hiked since 2009, but there are signs of improvement.
Despite the difficult environment for recovery stocks, he maintains that the recovery cycle is unchanged and the fund continues to seek companies whose problems are transitory or solvable.
In the past six months up to 31 March, the team has added Rio Tinto, Quindell, oil rig construction business Lamprell and Regenersis as new stocks to the fund. Dobell sold out of Centrica due to political situation but still liked the company. Meanwhile they have sold out of DCC on grounds of valuation and exited Redhall which was beset by legal problems.
According to Mark Dampier, head of research at Hargreaves Lansdown, the stock market was not a great place to be in April.
“There was way too much optimism at the beginning of the year. More money moved to defense stocks, and a lot of the profit was taken from mid to large caps.”
He added that the M&G Recovery Fund has been “out of sorts” for the past two years but that patience is key when it comes to this type of fund.
Investment process
Stocks in the M&G Recovery Fund are categorised within a four-stage cycle spanning approximately five years. In stage one, or the unloved stage, the fund holds BP, Quindell and Standard Chartered. Stage two holds GW Pharmaceuticals, Lloyds TSB and Home Serve. In the third stage, EasyJet, Kingspan and Entertainment One mark their place, while in the final stage Glanbia, Hunting and DCC stand out.
“It’s all in a day’s work,” Dobell commented.
“We do our very best to help struggling companies. It’s a clear, straight process based on patience and common sense in which we try sustain shareholder value, not just for the M&G fund but also for the individual companies we hold.”
