3 Fund Poised to Bounce Back in 2015

THE VALUE INVESTOR: Fund analysts have marked these three funds as among the best in their peer group, but they have underperformed recently. Could now be the time to buy?

Emma Wall 8 January, 2015 | 2:50PM
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This article is part of Morningstar’s Guide to Investing Ideas for 2015, our comprehensive round-up of where the most promising stocks, funds and markets can be found this year.

Even the greatest talents have off years. Athletes crash out of world tournaments, only to win gold next time around, pop stars’ best albums often follow a dud and actors can go from film flop to Oscar winner in one awards season.

Identifying the Comeback Kids of the City can be a profitable affair; picking up cheap units while a fund manager’s style is out of favour could result in long-term positive returns. To try and identify these under-rated investments we used the Morningstar Fund Screener to weed-out the funds that were highly rated by our analysts but had underperformed their benchmark or peers in the last year. Here are three of the results.

M&G Recovery

It has been a tricky couple of years for M&G Recovery. Poor performance has led to the fund being dropped from many “buy lists” and downgraded by some analysts. But Morningstar fund analysts retain their conviction in the fund, which has lost investors 11% over the past 12 months, but over a 10 year period has delivered an average annual return of 8%. It carries the highest Morningstar Analyst Rating of Gold.

“This fund’s relative performance has undoubtedly disappointed investors in recent years,” said Morningstar analyst Chetan Modi.

“While that is an unsatisfactory outcome for investors, the fund is still ahead of the benchmark and category since manager Tom Dobell took charge at the end of March 2000. Despite the weak near-term performance, we retain our conviction.”

Neptune European Opportunities

This fund has lagged peers over the last 12 months, losing investors 13.5%. But over the last decade it has delivered an average annual return of 9% every year. The fund is rated Silver and Europe’s fundamentals look promising for 2015 as politicians and bankers alike are determined to pull the region out of its troubles into economic growth – meaning 2015 could be a bounce back year for this fund.

“A talented manager and a nimble approach should work to the benefit of investors with a long-term time horizon,” said analyst Muna Abu-Habsa. “We have a high degree of confidence in manager Rob Burnett. He has implemented his investment strategy consistently over the years and he is not afraid to deviate from rivals when he believes he can add value. All told, we believe it's one of the better choices for European equity investors.”

Kames UK Equity

This fund flat lined last year along with the UK stock market, but analysts remain convinced of its long term performance potential. The fund carries a Silver Rating, and offers a good way for investors to get diversified exposure to UK equities. It has high correlation to the stock market as it holds between 60 and 80 UK-listed stocks, providing a diversified portfolio that is constructed with awareness of risk compared with the FTSE All-Share benchmark.

“Despite recent underperformance, an experienced manager and stable investment team, implementing a sensible and pragmatic investment process, give us confidence that going forward the fund can outperform,” said Morningstar analyst Richard Whitehall.

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 Acc314.44 GBP-0.15Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar

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