3 Second-Chance Funds for 2014

These three fund managers lost investors money in 2013 - but with a good long-term track record and adapted strategy investors should not write them off

Hargreaves Lansdown 8 January, 2014 | 10:38AM
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This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here, Adrian Lowcock of Hargreaves Lansdown warns investors not to give up on three highly regarded fund managers.

Stock markets have generally put in a good performance and rewarded investors in 2013. Even with the economy recovering there are some managers who struggled. Adrian Lowcock, Senior Investment Managers at Hargreaves Lansdown, picks three managers he believes are set to bounce back in 2014.

Tom Dobell - M&G Recovery

(Rated Gold by Morningstar)

Why he has underperformed

His fund has benefited from merger and acquisition activity (M&A) in the past. A lack of M&A in recent years has affected performance.

Investors have focused on better quality companies in the past couple of years, ignoring those companies undergoing change and restructuring, the types of companies Dobell invests in.

Why you should stick with the manager

Fund manager styles come in and out of favour. Even in the tough years Dobell continued to stick to the same process that has worked successfully.

M&A activity is starting to pick up which could benefit the fund.

Dobell has an impressive long term track record and outperformed the stock market for ten consecutive years between 2001 and 2010.

Sebastian Lyon - Troy Trojan

(Not Currently Rated by Morningstar)

Why he has underperformed

Lyon focuses on capital preservation and held defensive assets which performed poorly in 2013. For example, he had significant exposure to gold which, in 2013, had its worst year for 30 years. In the fund he currently has 10% in gold and 3% in gold mining shares.

Lyon’s concerns over inflation have yet to materialise and indeed inflation has been falling in the UK.

Why you should stick with the manager

In the past Lyon has been successful at getting the big macro-economic calls right. He believes quantitative easing will result in inflation in the medium to longer term. This fund should provide investors protection against inflation.

Sebastian Lyon focuses on capital preservation, but performance in 2013 was poor and for the first time the fund lost money for investors. We don’t expect that to be repeated in 2014, although the fund’s defensive nature means it may lag a strongly rising equity market.

Bill Mott - PSigma Income

(Under Review by Morningstar)

Why he has underperformed

Mott’s macro-economic views have generally been correct, but he became too focused on his long term view and missed shorter-term opportunities.

Our analysis suggests stock selection by the co-managers has been poor. 

The market rally has been driven by momentum, a style that does not suit Bill Mott.

Why you should stick with the manager

Bill Mott’s biggest strength is his ability to understand the economy. As economic recovery gathers pace, central bank intervention is reducing and his views on the economy should be better reflected in the stock market.

Gervais Williams is joining Mott as co-manager, replacing Graham Cummings. Williams has excellent stock picking skills which should complement Mott and help translate his macro calls into the right stocks.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
M&G Recovery GBP A Acc325.55 GBP0.15Rating
Trojan I Acc354.15 GBP-0.59Rating

About Author

Hargreaves Lansdown  Hargreaves Lansdown is a financial services company based in Bristol that sells funds and shares and related products via its website and through the post to retail investors in the United Kingdom.