The investment house is writing to shareholders of the £208m M&G Income fund to seek their approval for the merging of this vehicle with the £521m M&G Dividend fund. Provided that at least 75 per cent of voting shareholders cast their vote in favour, the smaller fund will be wrapped into the larger fund in mid-August.
Since July 2010, the two funds have been managed by Alex Odd, who has applied the same investment approach to both. As a result, the two portfolios have become increasingly similar.
Performance of funds vs sector over 10-yrs
| Name |
1-yr returns (%) | 3-yr returns (%) | 5-yr returns (%) |
10-yr returns (%) |
| M&G Dividend |
20.66 | 14.21 | 15.3 | 45.22 |
| M&G Income |
20.49 | 11.3 | 16.82 | 29.73 |
| IMA UK Equity Income |
19.86 | 13.73 | 17.45 | 55.04 |
Source: Financial Express Analytics
This has been reflected in performance – over a one-year period, both funds have returned around 20 per cent, marginally outperforming their IMA UK Equity Income sector average.
M&G Dividend has also returned slightly more than its sector over three years, although M&G Income has underperformed IMA UK Equity Income by 2.43 per cent during this time. M&G Dividend and M&G Income’s biggest deviation from their sector comes over 10 years – the funds underperform by 9.82 and 25.31 per cent respectively over this period.
M&G says the merger will avoid the unnecessary duplication of constructing two portfolios and will enable the manager to spend more time on research and stock selection.
Odd commented: "Being able to concentrate on a single portfolio will maximise the time I can spend on research and puts the combined fund on the best possible footing to deliver long-term performance for investors."
Investors in the enlarged M&G Dividend fund are expected to receive the same level of income as they do in the two separate funds. According to Financial Express data, both funds have a historic yield of around 4 per cent.