The Schroder recovery fund, formerly the Schroder institutional recovery fund, invests in companies that have suffered a setback and their valuations will reflect this. A setback could mean they are out of fashion with the market or have suffered s fall in profitability.
However, they will only be selected where they still have good market positions, strong balance sheets and a quality management team. These are factors that 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 currently managed by Ben Whitmore, who joined Schroders in 1994. Whitmore managed the fund jointly with Nick Purves between 1998 and 2001 before taking sole responsibility for the fund. The retail fund has already been awarded a AA rating from Standard & Poors
Whitmore follows a contrarian value approach 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 between 60 and 80 stocks which currently include Shell Transport & Trading Company, Wembley and British Telecom. Whitmores strategy is to invest in the companies for the long-term, so turnover is expected to be low.
However, Whitmore 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 5th out of 268 funds on a bid-to-bid basis with net income reinvested over three years to November 30, 2004.