View more on these topics

M&G Optimal Income fund sheds £5.5bn


M&G’s Optimal Income fund has shed £5.5bn so far this year, dropping from its peak of £25bn in assets.

The fund has seen consistent net outflows this year from a high of £24.6bn in assets at the end of January to £19.1bn at the end of August.

June and July marked the worst months of outflows, with £1.4bn and £1.2bn respectively of net outflows each month.

The outflows are partly a broader rotation away from bonds and into equities, but are also a reaction to the fund’s size and its recent underperformance, says Jake Moeller, head of UK and Ireland research at Lipper.

“Irrespective of the recent China-induced volatility there has been quite a strong rotation into equity income, it has been a major theme of the last year,” he says.

Tilney Bestinvest managing director Jason Hollands agrees that the fund is likely bearing the brunt of moves out of fixed income.

“I think this is largely a reflection of broader outflows from fixed income, as investors have been adjusting positions ahead of future monetary tightening, but understandably it has been the very large, widely held funds that have borne the brunt of this,” he says.

Recent Investment Association data showed fixed income net outflows in August were the largest since June 2013, at £333m.

The M&G Optimal Income outflows are also likely a result of quick money moving out of the fund, says Moeller.

“I think a lot of hot money has gone into bond funds lately and that’s come out again. I suspect part of the outflows in M&G Optimal Income would be the last money that came in and the first money to come out.”

M&G Optimal Income fund outflows

Despite the £5bn in outflows, the fund is still too large, says Moeller.

“Has it become too big? Yes. It’s not about a pound amount it is all about the number of securities these guys are holding,” he says.

Speaking earlier this year, Richard Woolnough, manager of the fund, said that investors need to be aware that the larger a fund gets the harder it is to make asset allocation decisions.

“The larger the fund by definition it makes it harder to add individual stock selection or asset allocation ideas,” he said. “That’s something we’ve seen in the last 10 years.”

Performance of the fund has lagged recently. Over the past year to the end of August it has lost 1 per cent compared to a 1 per cent gain for the sector average.

While the fund generated an annualised return of 8.45 per cent from January 2007 to July 2015, above the 3.05 per cent for its peers, short-term performance has not been so impressive, says Morningstar analyst Ashis Dash.

“It has slipped behind the pack in more recent years as its aggressive short-duration stance held back performance in 2014 and the first half of 2015,” Dash says.

However, the recent outflows should also be a red flag for investors to focus on bond liquidity, says Hollands.

“Given the potential for these fixed income outflows to gather pace as investors adjust their thinking on interest rates, a potential fixed income liquidity crunch is a risk in the event of a stampeded for the exit,” he says.

“In this respect a lot of asset managers will quietly admit that daily dealing is not at all helpful – as we saw when enhanced cash funds came under pressure during the credit crisis.


Pensions-savings-retirement-piggy bank

Is Govt pension policy killing off savings incentives?

Company bosses shunning pensions in favour of cash is an “awful indictment” of the Government’s pensions policy, advisers say. Last month the TUC’s annual PensionWatch survey of FTSE 100 executives’ pensions found high earners are choosing to take cash over pension contributions. It says more top directors than ever before (70 per cent) opted for […]

FCA logo glass 620x430

FCA sets out whistleblowing rules

The FCA and the Prudential Regulation Authority have published new rules to encourage staff to raise concerns over poor practice. Banks, building societies, PRA-regulated investment firms and insurers will fall within the scope of the whistleblowing rules, which will take effect from 7 September 2016. Firms will be required to appoint a senior manager as […]

FCA logo new 2 620x430

FCA: Mandatory PI wording ‘would prevent competition’

The regulator is unlikely to introduce mandatory wording for advisers’ professional indemnity insurance policies, according to FCA senior technical manager Rory Percival. Percival told delegates at the Institute of Financial Planning’s annual conference today that to do so would be prohibitive to competition. PI broker O3 Insurance Solutions managing director Jamie Newell said the lack […]


Who are the IFP award winners of 2015?

Cooper Parry Wealth has scooped the award for accredited financial planning firm of the year at the Institute of Financial Planning’s gala dinner last night. The awards are held at Celtic Manor in Wales as part of the IFP’s annual conference. The certified financial planner professional of the year award was won by Paradigm North […]


News and expert analysis straight to your inbox

Sign up


There is one comment at the moment, we would love to hear your opinion too.

  1. Last time I checked, the yield on the fund was a paltry 1.8% p.a. which is hardly optimal. Why didn’t M&G soft close the fund three years ago to stem what must even then have been excessive inflows?

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm