The unloved find a friend in M&G Recovery

FACEBOOK, the social networking phenomenon that last week was sued for allegedly misleading investors ahead of its £70billion flotation, is not among the companies owned by M&G Recovery Fund.

The £8billion trust launched in 1969 and never buys into companies when they first come to market.

Portfolio manager Tom Dobell says: ‘When a stockbroker from California rang seeking investment in Facebook shares, it was a short phone call.’

Dobell and his team have a strict formula. They buy only ‘unloved’ companies that are suffering specific problems that cause the market to shun them – for example, BP after the Gulf of Mexico oil spill. They then hold the shares through what they hope will be a period of stabilisation and recovery, leading to a fuller valuation, at which point they sell.

The companies will have problems, but not intractable ones. ‘We need to trust the management,’ says Dobell. ‘We would never invest in businesses where there are both financial and operational problems.’

Dobell is only the third person to run the portfolio since launch and it is one of the few to outperform the wider market most years. That does not mean that it never loses money, but it gives it something of a cult status among investors.

‘The biggest cause of withdrawals from this fund is, regrettably, our investors’ deaths,’ Dobell says.

The fund currently holds 96 stocks. Most will be owned for several years and so, for example, only half the portfolio has turned over since 2009. Half the fund is made up of large firms such as Shell and Unilever.

The rest is made up of medium or small businesses, where Recovery’s stake can be large. These include firms such as appliance repairs group HomeServe, which has bombed recently because of alleged policy mis-selling, and Mothercare.

‘Mothercare is a classic recovery stock,’ Dobell says. ‘It’s doing badly on depressed High Streets and looks troubled but it has 100 stores in India and will have 300 there in the next few years. Don’t forget, 26million babies are born in India every year.’

Dobell owns shares in HSBC but not in other British-listed banks. ‘Banks have abused their taxpayer guarantee and executives have put themselves ahead of shareholders and customers,’ he says. ‘Banks have also behaved harshly toward excellent businesses. It’s tragic.’