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Road to recovery

Schroders has made its institutional
recovery fund available to retail investors in the UK. The Schroder
recovery fund, formerly the Schroder institutional recovery fund,
invests in companies which have suffered a setback and their
valuations will reflect this. A setback could mean they are out of
fashion with the market or profitability has fallen.

However, they will only be selected where they still have good market
positions, strong balance sheets and a quality management team. These
are factors which will enable the stocks to withstand market shocks
and lead to a revival in their fortunes.

The fund was established for institutional investors in 1970 and is
managed by Ben Whitmore, who joined Schroders in 1994. Whitmore
managed the fund jointly with Nick Purves from 1998 to 2001 before
taking sole responsibility for the fund. The retail fund has been
awarded a AA rating from Standard & Poor’s.

Whitmore follows a contrarian value app-roach to stock selection and
does not use a benchmark as a starting point for portfolio
construction. He believes benchmark indices tend to be concentrated
in a relatively small number of stocks which results in a lack of
diversity.

The fund will contain 60-80 stocks which currently include Shell
Transport & Trading Company, Wembley and British Telecom.
Whitmore’s strategy is to invest in firms for the long term so
turnover is expected to be low.

However, he warns potential investors that the portfolio will be more
volatile than the FTSE All-share index and the fund may underperform
while the stocks start to turn around. Consequently, this fund is
unlikely to suit investors with a short-term outlook.

Data from Trustnet ranks the Schroder recovery fund fifth out of 268
funds on a bid-to-bid basis with net income reinvested over three
years to November 30, 2004.

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