Investec UK Special Situations invests in companies doing badly in hope they will turn around

Investec UK Special Situations invests in companies when they are doing badly in the expectation that at some stage they will turn themselves around

Patience lies at the heart of how investment fund Investec UK Special Situations is managed. It invests in companies when they are doing badly in the expectation that at some stage they will turn themselves around and make serious money for those who have backed them through all the trouble and strife.

It’s an investment strategy, overseen by Alasdair Mundy, that can take a while to generate results. Indeed, over the past five years, the fund’s performance has failed to match the FTSE All Share Index, registering a return of 24 per cent (compared to 33 per cent for the index).

But Mundy is convinced that a portfolio that contains leading UK companies such as BP, Barclays, Capita and Tesco will come good at some stage.

He says: ‘What I am looking to do is invest in out-of-favour companies – businesses that at the time are often on the BBC News at Ten for all the wrong reasons.

Maybe because of an accounting scandal – as happened to Tesco in 2014 – or going back as far as 2007 and 2008 as a result of the financial crisis and its impact on the banks. I then hope these businesses will sort themselves out and come good again, even if the transformation takes a while.’

For example, at the beginning of last year, Mundy started building a position in outsourcing giant Capita. This is after the company, under new management, had warned profits would plunge as a result of mounting debts and an expansion plan that had backfired, putting pressure on its balance sheet.

It resulted in a rights issue – Capita raising cash from shareholders through the issue of new shares – an axeing of the dividend and the sale of some of its non-mainstream businesses such as parking management business Parking Eye.

Although the shares remain depressed – trading around £1.15, compared to a 52-week low of just above £1 – Mundy is confident that a leaner Capita will generate bigger margins in the future, resulting in a jump in profits and hopefully a rerating of the shares.

Mundy has had some noticeable successes along the way, including an investment in Games Workshop, manufacturer of miniature fantasy characters and war game Warhammer.

He first bought into the company 12 years ago when the shares were £3.50 and this built a holding at an average price of £2.49. He sold out of the company last year at an average price of £14.05.

He says: ‘I bought when investors had lost faith in the company. But it has been re-energised and is one of the few retail success stories of recent years.’

Mundy has many fans among the adviser community. Scrutineer FundCalibre includes UK Special Situations among its ‘elite’ rated funds, describing Mundy as one of the most ‘disciplined and successful contrarians operating in the UK market today’.

Other similar funds to get an elite rank include Liontrust Special Situations and Schroder Recovery.

The £967 million fund, invested across 45 companies (primarily UK listed), has an ongoing annual charge of just over 1.5 per cent – a little on the high side.

It pays an annual dividend in late November although this is minimal and is not an objective of the fund. Mundy’s overriding objective is long-term wealth generation.

Mundy and his nine-strong team run portfolios totalling £4 billion for Investec.


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