Internal investigation by asset manager M&G finds 75% of funds have returns eaten up by feeswritten by Bella Palmer
An internal investigation conducted by M&G, one of the UK’s largest retail fund managers, has found almost 75% 43 funds analysed were underperforming compared to their benchmark after fees and must improve results. Pure returns were often slightly ahead of the benchmark but devoured by the annual fees charged by the company in return for actual management. The net result for investors is that they would actually have been better off putting their money into passive index trackers.
Of the 43 funds M&G offers retail investors just 8 were judged to have had at least satisfactory performance. £23.4 billion of investors’ savings were held in the 31 underperforming funds compared to around £8 billion in those performing satisfactorily. Another 11 funds, holding about £739 million of capital, have been recently launched, making it too early to meaningfully judge performance.
Despite recognising the need for the actively managed funds missing their benchmark after fees to improve their performance, M&G still concluded that 92.1% of its funds under management “provide overall value”.
Investors who would have made more by putting their money into a cheap tracker fund with no management may beg to differ. M&G’s £1.6 billion Recovery fund, one of its most popular, is rated just 209 out of 224 and 232 out of 236, among the funds in its sector over five years and three years respectively. M&G still concludes the fund offers overall value to investors.
M&G’s findings came as a result of the second annual value assessment report of its funds it has conducted. The requirement of fund managers to produce the report annually was introduced by the FCA in 2020. The regulator wants funds to justify the fees they charge investors and for prospective investors to be able to easily find objective data on a fund’s historical performance.
The FCA has criticised how different fund managers are presenting their value assessment report with no clearly defined standard. M&G benchmarks all of its funds, which is considered good practice, but rivals like St James’s Place don’t always provide a benchmark comparison. St James’s Place’s report offered a benchmark for just 28 of 51 funds analysed.
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