M&G’s Rhodes admits ‘mistakes’ in 2014
The manager of the UK’s largest global equity fund, Stuart Rhodes, has admitted a series of mistakes he made in 2014 which led to him significantly underperforming.
Mr Rhodes, who runs the £9.5bn M&G Global Dividend fund, has told clients in an update that his fund was hit by stock-specific issues, selling stocks too early and also not having enough exposure to the US as the stockmarket there rallied hard.
The fund returned just 2.3 per cent in 2014 compared to the average return of more than 7 per cent from global equity peers and the 10.6 per cent from his benchmark MSCI AC World index, according to data from FE Analytics.
“We have made some mistakes in 2014,” Mr Rhodes said.
“Drifting away from the US, a core area of strength, was an error we will not repeat unless the circumstances are really extreme.”
The manager said he thought not having enough in the US cost him roughly 1 percentage point in performance terms.
While the fund had “always had a healthy allocation” to the US, the manager stated letting the fund “drift into an underweight position has been a mistake”, particularly given it had been the manager’s “most successful region”.
Not owning tech giant Apple, which is now paying a dividend, is now “under consideration as an investable candidate”. A lack of exposure cost the fund 0.5 percentage points of performance, Mr Rhodes estimated.
The manager also blamed the way he sold some stocks in the first half of the year as contributing to roughly 50-100 basis points of performance lost.
He said 2014 had been a “less successful year” in terms of how the fund divested holdings compared to the past.
“We sold a cluster of quality holdings in the first half of the year for valuation reasons – Reynolds American, Reckitt Benckiser, Chubb and Compass,” Mr Rhodes said.
“All of these companies were operating well and we had no concerns about the fundamentals.
“These companies have continued to perform well with sustained momentum and to grow into their valuations. Reflecting on this has caused us to think a little bit more carefully regarding selling within the quality bucket.”
Mr Rhodes added he would now be adopting a “more staggered approach to selling down positions” and would now be “using position sizes to reflect valuation rather than outright sells”.
“Quality companies will still be sold when valuations reach extreme levels,” he said.
“However, these levels were not reached in 2014 in our opinion and hence the regret in selling the full positions.”
