There are many ways to grade. One option is to hand in your work to an assessor (think a teacher at school). If you find yourself at a pub quiz, teams may pass the paper to another table to get them to mark it.
It is generally accepted that marking your own work tends to lead to questions over the validity of the result.
Yet every year, fund managers sit down and ask themselves a simple question: are we giving investors value for money? Remarkably, usually the answer comes back 'yes'.
Assessments of value were brought in by the Financial Conduct Authority in 2019 to bring to light the asset management industry’s weak price competition, high fees and poor governance.
Produced by the asset managers themselves, they equate to a yearly internal reflection on the state of the fund provider's offering. Like most self-regulated things, however, the end product is barely worth the paper it is written on.
I was extremely disappointed by M&G’s assessment of value this week. Within it, the firm decided that each of its 47 funds under consideration was a minimum of ‘satisfactory’, scoring three out of five. The rest were either ‘good’ or ‘outstanding’.
Funny that…
M&G is far from alone in this. After five seconds of searching, I was able to find asset management behemoths Vanguard and Baillie Gifford had also given all of their funds a green light.
The standard of value assessment varies wildly between firms but this latest offering has irked me because M&G used to be one of the (seemingly) few to actually conduct these reports in the spirit and manner in which they were intended.
In previous years, the firm gave full details for how each fund scored under the FCA’s different criteria: quality of service, performance, cost, economies of scale, comparable market rates, comparable M&G services and classes of units.
Most helpfully, it also outlined the percentage of its funds struggling for performance – arguably the most important metric for investors.
This year, both of these have been done away with.
A spokesperson for the firm said: "We simplified the format of our assessment of value report to make it more digestible for investors. The underlying assessment remains unchanged, with investment performance a key component of our evaluation of value."
Much like a Mars bar from the 1990s – recently gone viral for being double the size of today’s chocolate bar – these reports are suffering from shrinkflation, offering very little nutritional value and leaving people hungry for more.
These assessments of value now offer (rather ironically) no value themselves. Perhaps they should go the same way as the Mars Delight or the Cadbury Dream and be discontinued.
As a final note, there are 46 of the 47 M&G funds on FE Analytics. M&G AI Themes portfolio was the only one missing.
M&G’s own investment performance comparator is the fund’s own benchmark but for ease I have used the sector average. I, after all, do not have months to collate this.
Over three years to the end of June, nine funds were in the fourth-quartile of their respective sectors, while 20 failed to beat their average peer. Four did not have a long enough track record, meaning 47.6% of its funds have underperformed peers over three years.
Jonathan Jones is editor of Trustnet. The views expressed above should not be taken as investment advice.