M&G is reviewing the fees levied on its fund range after admitting three of its portfolios, including the £1.4bn Recovery fund, did not offer investors value for money.
The fund house’s debut assessment of value report said it was looking to improve the value provided by its entire fund range, revealing it was conducting a “major review” of the annual charges on its products.
M&G added no investor would see an increase to their annual charges or a reduction in the quality of service as a result of any changes implemented by the review.
It had already introduced a simple annual charge for all its funds in 2019 in a bid to “realign fees” to reflect the cost of managing the portfolios, a move which saw the charges reduced on a number of funds.
At the time, however, commentators claimed the new pricing failed to make the products more competitive for many investors.
In the 416-page value report, the M&G board said the steps were “very welcome” but that it was pleased further in-depth work on how to improve the long-term value M&G delivered was “progressing well”. The results of and response to the review is expected by this time next year at the latest.
How the funds fared
M&G’s long-established Recovery fund was the worst performing fund in terms of value for money over the period from April 1 2019 to March 31 2020, the report found.
Once a giant of the fund universe at more than £8bn in size, the portfolio now manages just £1.4bn as outflows and years of poor performance have seen it shrivel in size.
Over one, three and five years, the fund is ranked in the fourth quartile within the IA UK All Companies sector. Over five years, it has lost 14 per cent while its sector has returned 10 per cent, according to FE Analytics.
It was once a strong performer. Since 2000, when current manager Tom Dobell took over the fund, the portfolio is nearly neck and neck with the sector, returning 114 per cent compared to its peers’ 116 per cent.
The report stated: “We are unable to conclude that the fund has delivered value to its investors over the review period.
"The fund has consistently fallen short of its performance target, and we have determined that action must be taken by M&G to ensure it is better placed to achieve its objective going forward.”
Mr Dobell said it had been an “especially challenging” year for the fund as the risk-averse climate meant the shares it held were out-of-favour but he believed the potential remained "considerable".
The M&G Pan European Select Smaller Companies fund had also fallen short of its performance targets, the value report said.
The small portfolio, with only £134m of assets, has returned 25 per cent over the past five years while its peers in the IA European Smaller Companies Sector have seen nearly double the return (47.3 per cent).
Manager of the fund Michael Oliveros said the shares of smaller companies were “inherently more volatile” than their larger counterparts and that he still saw “great long-term potential” for the investors in the fund.
M&G said it had determined that “fresh action” was needed in regards to both the Recovery and Pan European Smaller Companies funds and that it would update investors as soon as it was appropriate.
The fund house found its Property Portfolio had also failed to deliver value, primarily due to a wave of redemptions resulting in the fund being suspended in December 2019 over liquidity concerns. The fund’s performance was also rated as “must improve”.
M&G rated its other funds as either satisfactory, good or outstanding, concluding they had delivered value to most of their investors over the review period.
Why M&G assessed its value for money
As part of the Financial Conduct Authority’s asset management review, fund houses are now required to carry out an annual assessment of whether the firm provides value for their clients.
The value rules — which have been in effect since the start of 2020 — require asset managers to look at their performance, costs, economies of scale, comparable market rates, services and share classes.
The mandated reports have already triggered Artemis and Aviva Investors to make changes to their fund ranges and charges.
Others, such as Vanguard and Hargreaves Lansdown, have insisted their funds deliver good value.
imogen.tew@ft.com
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