Record starting to speak for itself

Essentially, Recover provides insurance against the effects of volatility through currency-hedging services; everything from the most basic 'passive' hedging to more sophisticated stuff. In passive hedging, a fund manager whose domestic currency is, say, in sterling hedges (ie insures) the sterling value of its overseas assets against falling foreign currencies. The more sophisticated stuff begins with 'dynamic' hedging, where Record uses models that seek to protect clients where a foreign-exchange loss looks likely, but sidestep those hedge transactions that look likely to eliminate a gain. From there, it graduates to 'absolute return' plans, where Record aims to manage clients' money for a forex gain come what may.

Record's chief executive, James Wood-Collins, says that interest in the company's added-value services is growing and he reckons that trend should continue as the monetary policies of the developed world's central banks diverge. As these policies pull in opposite directions - the US and the UK are in the process of tightening while the EU and Japan are still loosening - that should affect exchange rates between the underlying currencies, stimulating demand for hedging.

The more the trend towards value-added develops, the better for Record because the sad fact is that basic currencies hedging is a commodity service where profit margins are pared to the bone. In passive hedging, Record's management fees are a sliver - just 0.03 per cent of funds managed in the first half of 2014-15. Fees from dynamic hedging and absolute-return funds, although hardly fat, are miles above that level - 0.14 per cent for dynamic hedging and 0.16 per cent for absolute return.

Still, passive hedging isn't to be scoffed at. It saved Record once and it's still the company's bread and butter. Go back to Record's flotation in 2007 and its bosses had almost written off passive hedging in favour of absolute-return services, which accounted for $29bn (£18.2bn) of the $56bn that the company managed. But the fallout from the credit crunch - when many absolute-return funds were shown to be absolutely useless - meant those managed by Record now stand at just $2.6bn. Happily, however, passive funds, which were down to just $18bn at the end of March 2008, swung back to favour and now account for $39bn of $53bn under management.

That said, dynamic hedging products account for most management fees - £4.7m out of £9.7m in the first half of 2014-15. Even that figure represented a 29 per cent drop from the previous first half because Record lost a key client. This points to another shortcoming in the operation - Record depends on a small number of clients. At the end of the first half, it had 49 and just 10 of them accounted for 80 per cent of its management fees.

Yet assets under management are rising and the chief executive says business enquiries are more varied - both by types of client and the products in which they are interested - than for many years. If enough new mandates come through, then the forecast for broadly maintained profits, earnings and dividends for this year and next (see table) from broker Edison might be revised upwards.

Even without that, Record's share price looks to be underpinned by the 1.5p dividend, which produces a 4.3 per cent yield. The cost of that is £3.3m, an amount that has been comfortably covered by free cash flow in each of the past two years, and there is no reason to think that will change soon.

Indeed, the related question is whether Record's bosses might decide to distribute some of the group's £28m of cash (it has no debt) in a special payout. True, some of that is needed for regulatory purposes and some to 'seed' new funds for which management wants a three-year trading record before it can market them. Even so.