The value for money provided by M&G’s funds has improved over the past year, according to the firm's second annual assessment.
The 193-page report, released yesterday (July 23) found the vast majority of the firm’s 54 funds are delivering value for investors, accounting for 92 per cent of assets under management.
This is an increase from M&G’s inaugural value assessment last year, which found 87.8 per cent of Aum were held in funds delivering value.
The best performing fund was the M&G Global Macro Bond fund, which the firm ranked as posting an “outstanding” performance in all share classes.
No funds were deemed to be delivering an unsatisfactory performance, however six funds were highlighted as needing improvement either in performance or value for investors.
The worst performing fund was the M&G Property Portfolio and its feeder fund, which saw each share class underperform their benchmark, the Investment Association’s Direct Property Sector.
The fund was suspended for over a year as a result of ongoing valuation uncertainty as a result of the pandemic. It was re-opened on May 10, once the fund’s manager Justin Upton was satisfied with the level of liquidity in the fund.
The firm said it “deeply regrets” the inconvenience that the suspension caused, and it is “unable” to conclude that the fund has delivered value to investors over the review period.
The report added it believes recent changes, including a restructuring of the portfolio to angle its exposure more heavily away from retail properties, as well as targeting a cash weighting of 20 per cent, was in customers’ interests.
The fund is solely managed by Justin Upton, who stepped up from co-manager last June after Fiona Rowley left M&G Real Estate after 27 years.
The M&G European Select Fund also saw each share class’s performance in need of improvement. All share classes outperformed the benchmark in the past year, however over a three-year period each share class significantly underperformed the benchmark, the FTSE world Europe ex UK index.
For both funds, M&G said after a thorough review of their performance and strategy it believes “the necessary actions have been taken for it to meet its objectives going forward”.
Other funds that were listed as needing improvement were the M&G Episode Allocation fund, the M&G European Corporate Bond fund, and the M&G Pan European Select Smaller Companies fund.
Jack Daniels, chief investment officer at M&G, said: “Over 92 per cent of assets under management in the range were found to have delivered value to customers.
"Whilst there is still work to be done, this improvement follows a review of our UK mutual funds in 2020 and a series of measures we have taken to improve value.
“It will take time for these actions to be reflected in longer-term investment performance, which is usually measured over five years, but in the short term, progress has been made."
He added: "We’re optimistic about improved performance – it’s a dynamic process that we monitor closely. We continue to invest into active investment management, including hiring our new equities chief investment officer, as we believe in the long-term value creation it can provide our customers and clients.”
Reduction in fees
In January the firm reduced the fees on 45 of its funds.
In an email to affected customers, seen by FTAdviser, the fund house said a range of M&G UK open-ended funds would benefit from a reduction in cost.
The reductions in prices were not uniform across the range of funds or share classes because its review had identified that some portfolios required greater reductions than others based on value for money, M&G said.
For example, some shareholders in the M&G Absolute Return fund saw their ongoing charge drop from 0.6 to 0.45 per cent, while those in the M&G Optimal Income fund benefitted from a reduction in cost of between 25 and 35 basis points.
Value for money assessments
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.
In July the Financial Conduct Authority warned fund managers it will take action after a review found most have not implemented value assessments that met FCA standards.
The FCA had conducted a review of 18 fund managers of different business models and sizes between July 2020 and May 2021 and found while some had been conducting value assessments well, “too many AFMs often made assumptions that they could not justify to us”, undermining the credibility of their assessments.
sally.hickey@ft.com
