A high-risk bet on a global recovery

IC TIP RATING

Tip style: GROWTH

Risk rating: HIGH RISK

Timescale: LONG TERM

The fund has stormed ahead since its launch in March 2013, producing a 49.54 per cent return and beating its benchmark index, FTSE All World, which produced 9.16 per cent. This made it the best performing fund in its Morningstar sector (Global flex cap equity) over that period, and for 2013 the fund was the top performer in the IMA UK All Companies Sector.

Such a strong debut may make investors feel they have missed the boat. However, the fund's manager, Hugh Sergeant, has a strong track record during periods of recovery, and has also run the River & Mercantile UK Equity Long Term Recovery Fund (GB00B1YHLP55) since 2008. Trustnet analysis shows he has outperformed his peer group in six out of eight years when the market has risen in previous years.

River & Mercantile UK Equity Long Term Recovery has historically had up to 20 per cent invested in global stocks, and after spotting more opportunities around the world than he could buy for his UK fund, last year Mr Sergeant decided to launch a world recovery fund. It has heavy exposure to Europe and Japan, two developed regions in which economic growth is expected this year, according to wealth manager Brewin Dolphin.

Ben Gutteridge, head of funds research at Brewin Dolphin, says: "This is a fund that allows its investors to enjoy the operational gearing associated with better revenues from a rising market. 2013 was a particularly strong year for equities and I'm optimistic we'll see even more recovery in 2014."

River & Mercantile World Recovery invests in companies of all sizes, in sectors such as financials, in retail banks and technology, both of which tend to do well during recovery periods.

The fund's strategy is focused around investing in less favoured areas of the market that stand to benefit the most from an improving global environment. But companies are not selected just because they are cheap. The manager is also looking for a catalyst for a rerating such as a management change or industry consolidation, which often takes place when companies are on their knees.

One of the best performing stocks in the fund has been Mediaset, an Italian media provider, according to Mark Thomas, managing director of wholesale distribution at River & Mercantile Asset Management. He bought Mediaset, which he describes as "the Italian equivalent of ITV", for €3 per share in 2008 when most investors wouldn't touch it with a barge pole. The shares now trade at more than €13.

Mr Thomas says: "We screen a pool of 1,500 stocks for four key traits: growth, quality, asset backing and recovery, and at the moment our strongest theme is recovery."

The fund has also had a big success with a Greek company called Jumbo, which he describes as the Greek version of Toys 'R Us. "I know a toymaker in Greece sounds like the last company you'd want to buy, but it came out positively in our screening and we've reaped the rewards," he says.

The biggest threat to the fund's performance would be a US recession or a Chinese "hard-landing" if its economic growth dramatically slows down, so if you're particularly pessimistic about either of these potential events, this might not be the fund for you.

If you invest in the fund directly, the minimum investment is £2.5m. However, you can buy it on fund platforms Charles Stanley Direct and Fidelity FundsNetwork where the minimum you can put in falls to £1,000.

With a total expense ratio of 1.25 per cent, it's just below its peer group average in terms of fees. The manager is also personally invested in the fund which will give investors an extra level of assurance. Buy.