Tesco shares: 'Why I'm still a fan'

Alastair Mundy, who manages the strong-performing Investec UK Special Situations fund, said Tesco’s dividend yield, which rose 7pc today as the share price sank, is too tempting to ignore.

Mr Mundy told the Telegraph he welcomed the news, believing the shock will accelerate some of the change he thinks is needed.

"We think that is good as it probably brings forward mass simplification of the group," he said. He hopes the company will sell international assets and other companies such as Dobbies Garden Centres and video streaming company Blinxbox so it can "focus 100pc on how to take on the discounters".

"We think a focused price war on where discounters make their money is the likely outcome – it won’t be pretty but still believe Tesco have got more chance than most of coming out on top," he added.

Michael Clark, another highly regarded fund manager, continues to hold Tesco shares.

Mr Clark, manager of Fidelity MoneyBuilder Dividend fund and Fidelity Enhanced Income fund, said: "New CEO Dave Lewis asked employees to come forward with problems and this issue has no doubt arisen as part of this new policy of openness. I still think that we have to get this issue in proportion: £250m is not going to sink a company making £2bn of profits. Tesco is still a very large business whose fortunes can be restored.

"Sainsbury went through significant problems over a decade ago before finding stability again and restoring the dividend and shareholder value under Justin King. We see a similar development at Tesco over the next few years.”

He also remained committed after Tesco announced a cut to the dividend at the end of August.

He said: "While the profit reduction and the dividend cut are painful in the short term, we recognize that the new management needs maximum flexibility.

"Futhermore, we are confident that Tesco will, over time, be able to restore its standing with customers and create value for shareholders. With 28pc market share in bricks and mortar grocery and an even larger share of the online grocery market, Tesco remains a very strong business. We continue to believe that the shares will generate excellent returns over time."

- This story will be updated throughout the day with more fund manager views

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