“Elephants don’t gallop,” Jim Slater once said. Taking a look at the FTSE 100’s performance over the past three years, he seems to have been right. It has returned 58% in that time, against more than 90% for the FTSE 250. But some believe that small- and mid-cap outperformance is coming to an end because of rising volatility in the global marketplace. On the London Stock Exchange website, Roger Guy, manager of the Gartmore European Selected Opportunities Fund, says: “Small-cap stocks have begun to suffer, particularly as higher global interest rates have a greater impact on smaller companies than large groups”.
This could see larger firms return to favour as investors seek more defensive stocks. Tom Dobell, manager of the M&G Recovery Fund, tells The Daily Telegraph that the FTSE 100 is “due a turnaround”. He says: “Much of [his] fund’s activity over the last year and a half has been centred around larger companies.”
So should you be buying into a large-cap fund? It’s one option, certainly. But why restrict yourself to the FTSE 100 in the quest for ‘recovery’ stocks? There are several other regions and sectors – such as Japan – that offer potentially far better ‘recovery’ opportunities. Ben Yearsley of Hargeaves Lansdown recommends Artemis Global Growth and Invesco Perpetual UK Aggressive, which are both “free to follow opportunities wherever they arise”. The Daily Telegraph also lists some of the more successful recovery-style funds – see the list on the left.
Should Anthony Bolton fans cut and run?
And still on recovery funds – the £6bn Fidelity Special Situations fund, run by ‘star’ manager Anthony Bolton, has split into two parts: Global Special Situations and Special Situations. The former will be run by Jorma Korhonen, “though Bolton will hold his hand tightly until the end of the year”, says Jeff Prestridge in the Mail on Sunday. The latter will be run by Bolton until the end of 2007.
In the past ten years, Bolton’s fund would have turned £1,000 into £4,243 – a return beaten only by one other UK equity fund, GAM UK Diversified. This means that “the pressure on Mr Korhonen is immense. Investors in his fund can only hope he can handle it”, says Antonia Senior in The Times. But, says Prestridge, investors “shouldn’t be panicked into selling the Global fund because Korhonen is an unknown manager.
The time to judge him will be when he has a year’s performance – or underperformance – under his belt.”