manager of m&G recovery portfolio tom dobell holding oil giant among his top positions
Manager of the M&G Recovery fund Tom Dobell is currently holding oil giant Shell among his top positions.
He said the oil company, whose share price is struggling after management overestimated proven reserves last year, offers scope for recovery and is therefore a prime candidate for his portfolio.
Pointing to the company's long history and quality assets, he said although there are management issues that need to be sorted out, he is confident they will be addressed.
Dobell describes Shell as being in the first stage of what he sees as a four-stage recovery cycle.
After the first unloved stage in this cycle, stage two is stabilising, three is recovering well and four is mature growth. Dobell aims to buy stocks while in the early stages of this cycle, with a three to five-year view.
There are 94 companies in the £1.06bn portfolio and most are chosen because Dobell considers them to be overlooked stocks with special potential. "They could, for example, be financially stretched, misunderstood stocks, or have new management teams or other problems," he said.
Another key holding in the portfolio is Regus, which falls into M&G's second stage or 'stabilising' phase of the recovery cycle. The share price of this stock collapsed following its float in 2002 but after radical changes over the past two years, the company is in better shape to succeed, Dobell said.
A stage three or 'recovering' example is Rolls Royce. Extensive development of new engines caused business failure in the 1970s but the company refloated in the 1980s and is starting to show an engineering success that is not fully recognised by investors, he added. Dobell is expecting significant cashflow to be generated by a family of engines it has developed.
Stocks are usually sold when they reach stage four, with Arriva a good example of such a holding. "We bought this bus and rail operator when the sector was out of fashion during the technology boom," Dobell said. "The company has since sold its car dealership to focus on buses and trains and is benefiting from a rising number of people using buses in London."
Due to the nature of holdings in the fund, there is a strong bias towards mid and small caps. Mid caps represent 29.3% of the portfolio and small caps 24.6%, while large caps are underweight relative to the FTSE All-Share, at 83.3%.
The fund is ranked 32 out of 248 funds in the UK All Companies sector over three years, having delivered a return of 23.6%, compared with the sector average of 10.8%, on a bid-to-bid basis, according to figures provided by Standard & Poor's.
Over one year to 4 October, the fund is ranked 51 out of 296 with a 4.5% returned compared to the 13.5% sector mean.