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Tom Dobell reveals 6 new stocks for M&G Recovery
Britain's leading recovery investor has revealed the stocks he has bought and sold for the M&G Recovery fund in the past year.
Markets
The past year has seen investors 'lose sight' of company fundamentals, M&G's Tom Dobell has said, forcing share prices down to unpalatable levels.
In a detailed update to investors covering the year to 30 June, the M&G Recovery star and a member of our Citywire Top Stocks panel said that even seasoned investors have had their mettle tested by markets.
'At various times during the past 12 months, investors have, in our view, lost sight of company fundamentals with many share prices being driven down to levels unjustified by the prospects for the business.
'At these times, the recovery investor has to hold their nerve and be patient, waiting until the market begins to recognise the potential that has been identified or starts to reward management for the improvements they are making,' Dobell (pictured) explained.
Over the year to the end of July, Dobell's £7.5 billion Recovery Fund , a star pick of Citywire Selection, lagged the FTSE 100's meagre total return of 0.7% rise, producing a negative return of just over 3%.
Despite this, the fund manager's conviction is unwavering. He told investors: 'We remain convinced there is a tremendous amount of latent value within the portfolio.'
Stock buys
Dobell believes the difficulty for companies obtaining funding from banks has presented him with several opportunities.
Satellite operator Avanti Communications (AVN.L) and KSK Power Ventures, a developer of private power projects in India, are two stocks he chose to buy.
He also took a stake in Cobham (COB.L) after it fell from favour with investors on concerns about possible cuts in government defence spending, particuarly in the US and the loss of its chief executive.
'The group remains highly cash generative, with a robust balance sheet and an impressive management led by an extremely capable chairman,' Dobell said.
Other new additions to the fund included electronics retailer Carphone Warehouse (CPW.L), emergency home services provider Homeserve (HSV.L) and Magner's cider maker C&C (GCC.L).
Dobell also continued to scale up a number of larger recovery holdings including BP (BP.L), Prudential (PRU.L) and BSkyB (BSY.L).
Stock sales
To ensure the Recovery Fund continued to hold around a 100 stocks Dobell sold a number stocks. These included AB Foods (ABF.L), Amec (AMEC.L) and Stagecoach (SGC.L), all of which he believed the 'recovery to be completed', allowing him to 'bank good profits'.
He also sold out of Finnish nickel miner Talvivaara after accepting the postion 'had not worked out as we hoped and we took the 'painful' decision to sell the stake.
Dobell also trimmed exposure to Vodafone (VOD.L) and Croda (CRDA.L) and took advantage of share price strength on bid speculation to realise profits in Gulf Keystone Petroleum (GKP.L).
Resources
As well as the sector producing some of M&G Recovery's significant winners, resources were also a drag on Dobell's portfolio.
These companies suffered because of concerns about global growth, though particular detractors for the portfolio included miners Kenmare Resources (JEV.L) and African Minerals (AMIq.L), and coal briquette firm White Energy.
Surprisingly, Kenmare was one of Dobell's best performers in the previous year.
On the positive side said that he and his team did well to avoid exposure to larger names within the resources sector, such as BHP Billiton (BLT.L), as these firms have suffered most against the 'backdrop of pessimism' and as commodity prices have come under pressure.
Significant returns were generated by stakes in Sierra Rutile (SRXR.L) and speciality chemicals business Croda. Sierra Rutile operates in Sierra Leone and has experienced growing sales of rutile, a titanium dioxide used in paints and ceramics and key to the mineral sands story.
The company's shares trebled during the period reviewed by Dobell. 'Croda has been an outstanding investment for the fund over the past six years,' the manager added.
Dobell told investors that his fund will maintain its focus on companies at the smaller end of the resource spectrun, and in particular he highlighted his team's continued faith in Kenmare, which until the first quarter of this year had enjoyed a strong run.
Investors started to take profits on the stock on fears about growth and because of a profit warning, however a recent company visit supported Dobell's conviction.
He explained: 'Although the group lost significant value over the period, we remain confident that good progress is being made at the Moma mine in Mozambique and a profit warning in February was simply caused by short-term production issues.'
Winners and losers
Elsewhere, Dobell had a number of stock winners over the 12 months and others which proved to be far more disappointing.
Star performers included biotechnology developer BTG Group (BTG.L), which 'benefited from strong demand for its products and reported good progress in testing a varicose vein treatment.
De La Rue (DLAR.L) was another winner. 'The security printer continues to recover under new management following the unfortunate production issues in 2010 and is also seen as a major winner if the euro were to collapse.'
On the flipside, fluid processing business Pursuit Dynamics (PUDY.L) was a major disappointment after Procter & Gamble withdrew from a joint development agreement, resulting in a revenue hit.
Dobell continues to back Pursuit though. 'We continue to work with the company's management to support their efforts to develop and market the group's radical-energy saving technology.'
Another negative factor was his lack of exposure to firms perceived to be less vulnerable to a slowing economy, such as Diageo (DGE.L), British American Tobacco (BATS.L) and Imperial Tobacco (IMT.L). He pointed out that even though all have performed, they are not recovery candidates.
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- Kenmare Resources PLC
- African Minerals Ltd
- Bhp Billiton PLC
- Sierra Rutile Ltd
- Croda International PLC
- Avanti Communications Group PLC
- Carphone Warehouse Group PLC
- Homeserve PLC
- C&C Group PLC
- BP PLC
- Prudential PLC
- Cobham PLC (COB.L)
- British Sky Broadcasting Group PLC (BSY.L)
- Associated British Foods PLC (ABF.L)
- AMEC P L C (AMEC.L)
- Stagecoach Group PLC (SGC.L)
- Vodafone Group PLC (VOD.L)
- Croda International PLC (CRDA.L)
- Gulf Keystone Petroleum Ltd (GKP.L)
- BTG PLC (BTG.L)
- De La Rue PLC (DLAR.L)
- Pursuit Dynamics PLC (PUDY.L)
- Diageo PLC (DGE.L)
- British American Tobacco PLC (BATS.L)
- Imperial Tobacco Group PLC (IMT.L)
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6 comments so far. Why not have your say?
Patrick Napier
Sep 05, 2012 at 07:25
A great manager but the fund is now far too big for comfort!
report thisBeaker
Sep 05, 2012 at 08:28
Agree with previous comment. Fund is less nimble than it used to be. Other funds should be better placed to cope with changing conditions and be able to adopt more tactical positions. However, the fund has been a solid performer with a very experience manager at the helm and should be a good long term hold.
report thisAndrew Gilliat
Sep 05, 2012 at 09:25
Yes, sheer size will preclude investment in the smaller companies' sector, where there has to be enormous recovery and growth potential. There has to be a limit on the number of companies that Dobell REALLY knows enough about.
report thisJETTE BARTON
Sep 05, 2012 at 17:55
Actually, M & G Recovery has done well over very many years. I wouldn't worry about the size too much. I think that Prudential owns the whole damm thing.
report thisSuze Jamieson
Sep 05, 2012 at 20:15
It does, but there are very tight chinese walls between the two, so if he chooses Pru, it's really because of the fundamentals.
report thisMark ath
Sep 08, 2012 at 20:45
Not sure why he would sell gkp unless it was sold several months ago. I see the bid story more in play now than ever
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