LGIM will conduct ‘comprehensive reviews’ into five of its funds, after it found they were failing on value for money for investors.
In the asset manager’s 128-page assessment of value report released last month, the majority of the firm’s funds were found to have delivered value and have been tracking within a ‘reasonable’ margin of their benchmarks.
However, the firm said five funds are not delivering the expected outcomes, due to the ‘scale and continuing nature’ of their underperformance.
For instance, LGIM said although its UK equity income fund had met its aims of providing an income above the benchmark, it had disappointed in terms of capital growth.
The firm said it has engaged with the fund management team of all poorly performing funds to identify the steps required to improve performance and will inform investors of the plan once the review has been completed.
Other funds that have underperformed include the Asian income trust, the UK special situations trust and its two real income builder funds.
LGIM said the real income builder funds, which invest in value stocks, were impacted by the Covid-19 outbreak which had a significant impact on companies’ ability to pay dividends in 2020.
A further seven funds were highlighted as needing to improve, despite delivering value.
These included LGIM’s UK smaller companies trust fund, which was judged to have underperformed for the three years to the end of 2020.
The report highlights that a new fund manager was put in charge of this fund late last year and has since been restructuring the fund's investments to ‘improve its risk and return profile’.
Also needing an improvement in performance were LGIM’s emerging markets government bond fund, as well as its global equities index fund, and its multi-manager balanced, growth and income trusts.
The firm said it would ‘continue to work to ensure we offer value to all of our customers’.
Since the start of 2020 fund houses are required to complete an annual assessment of whether they provide value for clients, as part of the FCA's asset management review.
The criteria set out by the regulator include performance, general costs, economies of scale, comparable market rates, comparable services and share classes.
The assessments have already caused Artemis, M&G and Aviva Investors to make changes to their fund ranges and charges.
Others such as BlackRock, SJP, Vanguard and Hargreaves Lansdown have insisted their funds deliver good value.
A spokesperson for LGIM said: "Based on our assessment, we concluded 75 of our funds deliver value. However, the assessment showed that the remaining five funds are not meeting expectations due to underperformance issues.
"A comprehensive review of each of these funds is underway to identify an action plan this year to address this underperformance and aim to swiftly and appropriately remedy this to ensure they deliver better value in future. All investors in these funds will be written to with the outcome of these reviews in due course.
"We continue to work hard to ensure that our funds offer investors value for money and deliver the best service in helping people save for their future."
sally.hickey@ft.com
