The past three years have not been kind to Dobell’s M&G Recovery Fund.
Holding a 93.2% weighting to UK equities and with some the biggest global names in its portfolio, the fund has suffered from the recent events in the banking and commodities sectors.
However, while the outlook does not appear to be favourable for the FTSE or equities in general – a mid-week rally proved short-lived as global markets ended 10 September in the red – Dobell is confident that rising M&A activity could act as a turning point.
“There has been thin pickings for M&A funds in recent times,” he said. “In the last three or four years there has been very little activity to speak of at all.
“That is starting to change, and we are beginning to see transactions across the market. This has been extremely helpful for our type of investment, and is starting to filter through to the fund.”
Stocks in Dobell’s portfolio that have completed deals or currently on the acquisition trail include Quindell and CRH, while Aviva – whose April acquisition of Friends Life was one of the biggest M&A stories of 2015 so far – accounts for 3.2% of the fund.
Dobell said: “We have a number of transactions that have been completed and three others that are going through the process, and a broader level there is a lot more M&A activity now.”
Commenting on his fund’s recent underperformance – which has amounted to a three-year cumulative return of 1.4% against a peer group average of 35.8% – Dobell cited risk-averseness currently embedded in investor sentiment.
“There has been a significant amount of risk-aversion among investors in recent months,” he said. “The last four or five years have been difficult, which is part and parcel of the job.
“The average price/earnings of low-risk companies has spiked up to a multiple well above its average over a longer length of time. Yes, we have failed to sustain the outperformance that we saw in the first 10 or 12 years of the fund, but I think that 2015 will be more stable. We are re-grouping.”
Hold the firm
As well as recently increasing his financials exposure by adding Standard Chartered and RBS, Dobell is opting to stand by some of his biggest underperformers – the most notable of which is top holding BP, which accounts for 6.7% of the portfolio.
