Buying bargain basement stocks that nobody else wants is a strategy that’s forged the reputations of some of the world’s greatest investors. Yet, while value investing has a rich heritage and stellar performance history, it comes with drawbacks. Performance can be volatile and deep value stocks can be unpredictable. Ultimately, it’s an approach that suffers periods of underperformance.

With this in mind, it’s hardly surprising that disciplined, long-term value investing isn’t exactly prevalent in professional fund management. In an industry notorious for short-term performance targets, value-focused fund managers arguably suffer from career risk more than most.

But one exception is the Value Investment Team at the asset management giant, Schroders. Headed by Nick Kirrage and Kevin Murphy, the team manages around $18 billion across a suite of value funds, including the Schroder Recovery fund, which they took over in 2006, and the Schroder Income fund.

Having just celebrated the tenth year running the £750m deep-value Recovery fund, I met with Nick Kirrage to find out what it really takes to beat the market in stocks that nobody else will touch.

You’ve now been running the Recovery fund for 10 years, and it’s up 127.1% against a sector average of 72.5%. What are your reflections on what you’ve achieved and how it has performed?

Kevin and I have been investing for over 15 years, and 10 of those have been spent running the Recovery fund. When we took it on there was quite a lot of responsibility, even though very few in the UK market knew about it. It was an unconstrained fund that was benchmark-unaware and half the book was institutional and internal money. We were invited to showcase what we could do, as long as it was in a value style. Of course, the first thing we did was underperform for two years!

But that’s the nature of the market. Value outperforms over time, and when it doesn’t I think a lot of the skill in the job is psychological. It’s about learning not to drive yourself crazy or fall apart on bad performance. Over time you have a strategy that outperforms, but you also know that you’ll struggle with it.

So it was a huge source of celebration after 10 years because we’d set ourselves the target of being in the top decile over that time period, and we were. The fund’s performance is around 18th out of…

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