Which is the Best Value Fund?

THE VALUE INVESTOR: The art of buying stocks which trade at a significant discount to their intrinsic value takes a trained eye. So which fund manager should you choose?

Emma Wall 27 February, 2014 | 5:16PM
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Value investing is the art of identifying undervalued assets and snapping them up before the market realises just how much their worth. While it is not a fool-proof method – sometimes stocks are cheap for a reason – if you get it right you can make serious returns.

Value investing is a bumpy ride however. Even the most famous value investor Warren Buffett gets it wrong sometimes. For that reason value investing is best left to the professionals – and there are two funds in particular worth your consideration.

In the blue corner we have Tom Dobell, manager of the Morningstar analyst Gold Rated M&G Recovery fund. Since it was launched just three managers have guided it over its 43-year lifespan. Current manager Dobell is a city heavy-weight with over a decade’s experience in picking under-appreciated stocks. Over the past 10 years Dobell has returned an average of 10% every year to investors – but it hasn’t been smooth sailing. In 2008 the fund lost 28% only to make back 41% the following year.

2011 was another loss making year but the following 24 months made up for it. Morningstar analyst Chetan Modi said Dobell had rewarded investors with stellar performance over the long term and despite the significant asset growth over his tenure, we have not seen a negative impact on performance thus far.

M&G Recovery favours companies that have undergone management changes or have underperformed the market and the manager likes to take sizable stakes in the fund’s holdings so he can help advise and support company management to turnaround situations and restructures.

The fund is prodiminantly invested in the UK, but it does also hold 15% of its portfolio in stocks listed in Canada, Europe, Africa and Asia.

The fund has a three star rating at the moment, meaning it currently has an average past performance when compared to peers.

In the red corner is the Schroder Recovery fund. This Bronze Rated fund is co-managed by Kevin Murphy and Nick Kirrage. According to Morningstar analyst Simon Molica, although relatively young in age, the duo has demonstrated the ability to utilise the fund’s robust process and combine this with their strong analytical capability.

Kirrage and Murphy use a screening process to identify undervalued companies which they then perform detailed research on to identify which companies are worth meeting.

Similar to M&G, Schroder Recovery has 85% invested in the UK, but with the remainder invested in the developed markets of the US and Europe.

Their performance has been better than Dobell’s in recent years, returning an incredible 45% to investors in 2013, and 34% in 2012 earning the team a four-star rating. But like M&G’s fund, the Schroder performance is volatile and the duo did lose cash in 2008 and 2011.

“Investors need to have a long-term mindset to truly reap the benefits offered by this specialist fund,” said Molica.

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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About Author

Emma Wall  is former Senior International Editor for Morningstar