Sergeant’s fund makes big recovery
River and Mercantile’s World Recovery fund has had a dramatic return to form after it endured losses in the second half of 2014, thanks in part to eurozone plays.
From its March 2013 inception to May 5 this year, manager Hugh Sergeant achieved a top-decile 61 per cent return, against a 28 per cent rise by the vehicle’s MSCI AC World benchmark and a 26 per cent average by its Investment Association Global peer group.
But in the little more than two years of the fund’s existence, it has not all been plain sailing. After delivering a strong performance in its first year, this subsequently tailed off between April and December last year.
Since then the vehicle has steadily returned to positive territory, though, and year to date it is ahead by 16 per cent – double the IA Global sector average.
Mr Sergeant admitted recovery-type shares had suffered during the flight to safety in the second half of last year.
“Throughout the two years of the fund, we have been focused on recovery stocks worldwide,” he said.
“In 2014, we saw that period of market uncertainty develop across the eurozone.
Recovery stocks are often more volatile than the market in general.
“But in the fourth quarter there was a reversal of this pattern and investors became more comfortable in Europe.”
Looking ahead, Mr Sergeant said he was still “maximum bullish on the recovery in the eurozone” – where 45 per cent of the fund is invested – and was keen on Japan too, thanks in part to the easy monetary policy in both regions.
He added he was also finding opportunities in developing markets.
“The eurozone, Japan and emerging markets are the fund’s three broad themes right now,” he said. “But being underweight the US, where valuations look stretched, has also helped the performance.”
Given the philosophy behind the fund of seeking out recovery and under-loved stocks from across the global marketplace, its punchier nature means it is more likely to appeal to intrepid investors.
But Mr Sergeant urged he wanted to “find stocks which have the potential to rise by 100 per cent over a three- to five-year period”.
The vehicle’s biggest holdings include Chinese financial services provider CNinsure, which has witnessed its online revenue book swell from zero to 15 per cent in the past 18 months.
But Mr Sergeant’s top investment at the moment is in Italy’s largest commercial broadcaster, Mediaset, where the manager has 1.7 per cent invested.
“It is the ITV of Italy,” he said. “The issue facing it is that advertising has been very weak since the onset of the European sovereign debt crisis, and as a result profitability has been depressed.”
The business has helped the recent bounce in the fund’s performance and Mr Sergeant identified this as the type of stock that had the high-growth potential he was seeking.
“I am 100 per cent focused on buying recovery stocks. I am looking for firms with good quality underlying business franchises,” he said.
