Undervalued Assets Funds

LookingToTheFuture_2

While browsing on the Charles Stanley website I came across a category of funds that specialise in investing in stock that the fund manager believes to be undervalued. The funds available are:-

FP Matterley Undervalued Assets B Fund

GLG Undervalued Assets Prof Fund

Jupiter Undervalued Assets I Fund

I was wondering what you all think about this type of fund. They are quite high on the risk scale but I would think they would have the potential for very high growth. But surely it's just one person's opinion that these stocks are undervalued? Maybe the current low valuation is the correct one! Also, surely all the other funds are investing in stocks that they believe to be worth more?

I'm not necessarily going to invest in one of these funds but I'm spending a lot of time looking into the different types of funds available and trying to understand the investment strategy behind them.

jimjames

There are far more than just those funds. Also consider Special situations funds too.

But in reality any fund manager is trying to buy companies that are below their perception of value.

ChesterDog

LTTF, I think you did a pretty good summary of the situation yourself in your initial post.

bowlhead99

Funds that look to invest in undervalued assets or turnaround stories or "special situations" - there are a variety of specialist styles - can do particularly well during certain parts of an economic cycle.

The gains can be good when the picks are good, and if you think of the shape of the economy (and the FTSE) over the last few years, there has been a lot of scope to pick up particularly unloved socks at cheap prices. At other times the pickings are slimmer but it can still be done, perhaps with more of a challenge and less likelihood of finding a contrarian opportunity if everything is booming.

I see what you are saying about "surely everyone else is also buying whatever they think they can buy for less than it's going be worth", but this type of fund does have a defined intention to buy things that seem cheap, based perhaps on what potential a company has that hasn't been taken into account in the market consensus estimates. They might focus in particular on what the valuation looks like against the returns on capital being generated, the asset base and their own expectations for efficiencies from restructuring. So, trying to find deep value.

By contrast, other funds' managers might be perfectly happy to buy a solid "fairly" -priced company and just collect the dividends or ride the growth curve the market is already predicting, for a given sector.

The ones you are talking about, looking for special undervalued opportunities, will tend to have a less diverse portfolio with fewer stocks. Likely to be more conviction-driven, not wanting to pad out the portfolio with diversification if it means buying the stocks that have more 'ordinary' prospects. While others might simply be looking for fairly valued companies paying dividends, because their investors need income, or companies growing fast, because their investors are looking for high growth with no dividend expectations, or whatever their fund style is that they're constructing for the target audience.

As an aside, you mentioned the Matterley and GLG funds. The GLG fund has not been going long but is run by Henry Dixon, who moved over to GLG with his team last year, but had previously been a founder of Matterley and continues to run his old "Undervalued" fund for Matterley. But GLG launched a new one for him too.

Both funds therefore use the same style (and also the same 0.75% management fee), and in recent monthly factsheets have shown similar key conviction holdings like Segro, Direct Line, Bpost, Andritz.

And their top 10s both still contain some big boys like Shell, and they'll hold other "normal" equities like Diageo that you'd expect to see in a UK equities fund. But the weighting to Shell and Diageo are lower than you'd get in a tracker that weights on Market Cap - these guys would be tempering those weightings by considering some concept of value for money and not just putting the most money into the biggest companies.

LookingToTheFuture_2

Thanks to you all for your replies.
Jimjames - I'll have a look at the Special Situations funds too. I didn't realise that they were the same.

ChesterDog - thanks for your comment. It's good to know that I'm thinking along the right lines. I've been reading lots on investing and I feel I'm learning more every day.

Bowlhead99 - many thanks for your detailed post. It's great to have investment strategies explained so thoroughly.