Every recovery fund has also outperformed the index in the last decade, and only Mark Lyttleton’s BlackRock Growth & Recovery fund has underperformed over a five-year period.
Performance of funds vs sector and benchmark over 10-yrs
| Name |
3-yr returns (%) | 5-yr returns (%) |
10-yr returns (%) |
| MFM Slater Recovery |
93.56 |
19.81 |
N/A |
| BlackRock Growth & Recovery |
85.38 |
2.56 |
151.36 |
| M&G Recovery |
57.03 |
27.23 |
131.55 |
| R&M UK Equity Long Term Recovery |
55.88 |
N/A |
N/A |
| Schroder Recovery |
55.32 |
10.19 |
148.26 |
| IMA UK All Companies |
44 |
1.02 |
49.05 |
| FTSE All Share |
43.33 |
5.39 |
57.36 |
Source: FE Analytics
The younger Rathbone Recovery fund has beaten its FTSE All Share benchmark since it was launched in July 2009.
The stand-out long-term performer is Tom Dobell’s £6.7bn M&G Recovery fund, which has returned 131.55 per cent over a 10-year period. Launched in May 1969, the fund is one of the oldest in the entire unit trust and OEIC universe.
According to FE Analytics, it has returned 38,779.34 per cent since launch – the best returns for any fund since inception.
Performance of fund since May 1969
Source: FE Analytics
An investment of £1,000 in the fund at the time of launch would have returned nearly £390,000 by now.
Fidelity Special Situations is M&G Recovery’s biggest rival, with returns of 13,476 per cent since its launch in December 1979.
FE Alpha Manager Andrew C Green’s SJP Recovery fund is the only one of its kind that sits in the IMA Global sector. The fund has returned 225.21 per cent since it was launched in February 1997, outperforming its sector average and benchmark by 184.87 and 170.98 per cent respectively.
However, in recent years the fund has struggled somewhat; in the last five years, it has lost 7.9 per cent compared with positive returns of 9.42 per cent from its benchmark, and it has also underperformed over three years.
While there is no official Investment Management Association (IMA) definition for recovery funds, they are expected to target stocks with potential that is unappreciated by the core market.
In theory, the manager attempts to identify catalysts that will reverse the fortunes of a poorly performing company, based on their appreciation of the macro environment and more specific factors that influence individual companies. For example, if there is a change in management for the better, or competition suddenly diminishes.
If the fund manager gets it right, the rewards can be substantial. Out-of-favour stocks are likely to be cheap and so the margins on returns are higher if the company does recover.
However, there are certain risks when investing in a fund that targets recovery growth. There is always the chance that unstable companies may not bounce back in the manner that the fund manager expects, or even go under completely.
Riskiness of recovery funds
| Name |
FE Risk Score |
| Rathbone Recovery |
100 |
| FTSE All Share |
100 |
| MFM Slater Recovery |
105 |
| BlackRock Growth & Recovery |
116 |
| Schroder Recovery |
117 |
| M&G Recovery |
120 |
| R&M UK Equity Long Term Recovery |
139 |
| Stan Life UK Equity Recovery |
169 |
Source: FE Analytics
In part, this is one of the reasons why the majority of recovery funds are riskier than their peer group. According to FE Analytics, all bar one UK recovery fund has an FE Risk Score higher than 100.
They have also fared worse during the high levels of volatility in the last year or so. Of the seven funds with a long enough track record, only M&G Recovery and Rathbone Recovery have managed to beat the FTSE All Share index in the last 12 months.
Julian Chillingworth, who heads up the Rathbone Recovery fund, says it is the flexibility of recovery funds that has allowed them to outperform in the long-term.
"Recovery funds are less influenced by the holdings of their sector and benchmark, which means they are able to take better advantage of the macro economic cycle," he said.
"They also have the flexibility to hold mid and small cap companies, which have done particularly well in the last few years."
Chillingworth says recovery funds could be set for a surge in performance when the global economic situation improves.
"The recent set-backs in Europe have provided a number of opportunities for recovery funds," he explained. "The managers of these funds are looking at distressed stocks all the time, so you could say they have an advantage over their peers."
"We’re currently monitoring the financials sector, which we believe could offer particularly good value once the European situation becomes a little clearer," he finished.