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Home > Investments > Fixed Income

M&G to limit inflows into giant corporate bond funds

Group announces plans to ‘slow inflows’ into bond funds; move follows recent FSA letter to bond fund managers probing liquidity.

By Bradley Gerrard | Published Jul 24, 2012 | comments

M&G Investments is moving to limit the giant wave of investment into its £6.2bn Corporate Bond fund and £5bn Strategic Corporate Bond fund run by Richard Woolnough.

The move comes after the FSA recently sent letters to corporate bond fund managers to understand the ongoing liquidity drought in fixed income markets, and how it is affecting funds.

M&G’s Mr Woolnough said on a client conference call: “We think all the time about fund size for all our funds.”

“With the investment grade bond funds we think it is in the interest of investors to explore ways to slow down money and so control growth.”

When market liquidity dries up it can become tough for the biggest funds to sell assets at acceptable prices, leading to a potential drag on performance.

“As the funds have become larger it has become more difficult to implement investment views, nonetheless we’ve achieved our investment objectives and continue to implement our views,” Mr Woolnough added.

Jonathan Willcocks, managing director, global head of sales, said there was “no single or simple step to slow new contributions” to the fund. He said the group would contact some of its larger clients to explore how to control the growth of the funds.

The two M&G funds have been extremely popular with investors in recent months as they have sought refuge in corporate bonds to avoid the volatility being seen on equity markets - leading to a wave of investment inflows.

An estimate from FE Analytics this morning said that the manager’s third major fund, the £7.6bn M&G Optimal Income fund, received investor inflows of £302.9m in June alone - and the fund has received more than £2bn in the past 12 months.

The group said that fund would remain open to investor inflows.

Darius McDermott, managing director at Chelsea Financial Services, called the decision a “sensible” one.

“The group is doing what is best for the people who have backed them over a number of years and that is better than a group being greedy and taking more money to the detriment of everyone.”

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