M&G Optimal Income outflows near £4bn

The group’s flagship portfolio has now haemorrhaged some £3.8bn over the past four months, reducing assets under management to £19.9bn as of July 31, the data provider’s estimates show.

M&G parent Prudential’s interim results, released earlier this month, highlighted that the fund house suffered a £4bn net retail outflow in the second quarter as the inflows of previous years reversed.

Prudential said the reversal chiefly reflected “a change in investor sentiment away from fixed income”, adding that it expected this trend to continue in the second half of the year.

The July outflows witnessed by Mr Woolnough on his Optimal Income fund add weight to that assertion. The fund, which can invest across all bond markets, has also witnessed its performance cool off in recent months.

In the five years to August 18, FE Analytics figures show the portfolio has achieved a total return of 35 per cent, versus a Sterling Strategic Bond sector average of 28 per cent.

However, over the past year it is ranked 63 out 78 within its peer group, having delivered a flat return.

Aside from concerns over the rise in bond yields seen across developed markets in 2015, FundCalibre managing director Darius McDermott believes the M&G fund’s size is an issue. While the broker still has the fund on its ‘buy’ list, it was removed from its ‘core’ list back in March.

Mr McDermott said: “Its size has been a concern. Performance has not been great recently but it does have a very good long-term track record.

“Overall we are still positive on the fund but we no longer have it on our ‘core’ selection as we believe there are other funds available that can deliver better returns in the current market. Also its yield of 2.07 per cent is too low.”

Laith Khalaf, a senior analyst at Hargreaves Lansdown, agreed the past year has not been particularly kind to the fund’s performance.

He said: “You are not going to get a huge amount of stock selection, given it has more than 1,000 holdings, as this makes it difficult to add value. What investors are getting is the macroeconomic expertise of a proven fund manager.”

Fund research group Square Mile classifies Optimal Income as AA-rated. Head of research Victoria Hasler said size is the primary reason it has missed out on an AAA label.

“[Woolnough] is an extremely experienced investor, however, and we like his more defensive stance,” she added.

But while Woolnough’s fund has experienced some hefty redemptions, M&G’s more esoteric fixed income mandates have begun to attract more attention in the current environment.

The fund house’s Global Floating Rate High Yield and Global Convertibles portfolios both sit in FE Analytics’ list of top 10 funds by net inflows over the past three months.

The floating rate fund was also added to Old Mutual Wealth’s list of life assurance offerings last week, a move the firm said was in response to demand from its adviser clients.