M&G explains serial fund underperformance

Wealth manager Tilney Bestinvest’s latest 'Spot the Dog' list of serially failing UK funds indicated M&G once again led the pack in terms of underperformance, prompting the firm to defend its record.

The bi-annual report highlights Oeics and unit trusts that have underperformed their benchmarks for three consecutive years, and by more than 10%, over a three-year period.

The latest instalment indicates total M&G assets under management in ‘dog’ funds have almost doubled from £6 billion since January, as its £5.5 billion Global Dividend fund joined the pack. In total, five M&G funds feature, including the firm’s Recovery, Global Basics, North American Dividend and Global Leaders, all repeat offenders.

In total, M&G holds 60% of total ‘dog’ assets. This is the fourth report in a row in which M&G has provided the bulk of the assets held in ‘dog’ funds.

Reacting to the report, Graham Mason, chief investment officer in M&G’s equities, multi asset and retail fixed income division, said the firm was “disappointed” to be included in the report, and acknowledged the “challenging” performance some of the funds have exhibited.

The firm has moved to address underperformance in its fund range, he said. For instance, a new lead manager was appointed to the firm’s Global Basics fund in December 2015.

He went on to state that the Global Dividend fund outperformed in its first six years of operation, and achieved its objective of growing income for investors every year, but energy holdings had been a significant drag on performance throughout the past two years.

While Aberdeen Asset Management contributed six funds to the report to M&G’s five, M&G holds a far greater amount of ‘dog’ assets; £11.9 billion, compared to Aberdeen’s £2.1 billion. However, this is due to a change in methodology which means only analysis of the lower-cost, commission-free version of funds is included in the report. If funds run by Aberdeen for Scottish Widows, Halifax, TU Funds Managers and St. James’s Place were included, the firm would contribute 13 funds to the report.

Commenting on the findings, Robin Powell, director of Evidence Based Investor, said investors “shouldn’t be surprised” by the report, and noted many current ‘dog’ funds were on advisers’ ‘best buy’ lists a few years ago.

“All the evidence shows that, after costs, only a tiny fraction of UK-domiciled funds are able to beat the index over any meaningful period of time, and they’re almost impossible to identify in advance,” he explained.

“Fund managers and brokers like to imply the UK is a special case and UK managers are able to add value consistently. The truth is it isn’t, and they don’t. In most cases, managers who appear to have outperformed through skill have simply taken more risk — by tilting towards value or small-cap stocks, for instance.”

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