M&G Global Basics was traditionally a big component of the M&G Managed Growth fund under former lead manager Graham French, who retired from the industry in November last year.
FE data shows Global Basics had a weighting of just under 30 per cent at the end of November 2013.
Somel has taken charge of both multi-billion pound portfolios, and in one of his first actions as lead manager has decided to cut his exposure to M&G Global Basics in his fund of funds, believing that it has hindered performance for too long.
“For the Managed Growth fund, there has been a change in focus following Randeep’s accession to the role of fund manager,” said a spokesperson for M&G.
“This is because, in his view, the portfolio had become too concentrated and reliant on too few core holdings. In particular, a significant position in the Global Basics fund, which historically had boosted returns, had become a detractor.”
M&G could not confirm how much of the Global Basics fund Somel has sold, but made it clear that it is a significant portion, ensuring that it no longer dominates M&G Managed Growth.
FE data shows that at the end of November last year, the second biggest weighting in M&G Managed Growth – M&G Global Growth – had a weighting of 14.4 per cent.
Although it sits in the IMA Global sector, the £3.9bn M&G Global Basics fund has a natural bias to commodities-related companies.
The team aims to benefit from the development of emerging economies, which meant that basic industries were always an overweight for French. Somel says this will continue to be the case and has confirmed that he will run the fund in an identical manner to his predecessor.
Commodities and mining in particular have had a poor time over the past three years or so, contributing to the relative underperformance of M&G Global Basics.
FE Analytics shows the fund has lost 8.1 per cent, putting it almost 28 percentage points behind its IMA Global sector average.
Performance of fund, sector and index over 3yrs
Source: FE Analytics
This has weighed heavily on the performance of M&G Managed Growth as well, which is itself bottom decile in its IMA Flexible Investment sector over one and three years. Needless to say, the fund is also well behind its FTSE World benchmark over these time frames.
Performance of fund, sector and index over 3yrs
Source: FE Analytics
The spokesperson says that money raised from selling M&G Global Basics has been put to work in other stocks and funds to ensure the portfolio is properly diversified and not dependent on any one sector.
“Since Randeep took over management of the fund, capital has been reallocated to new holdings, both into undervalued funds and new direct equity positions,” said the spokesperson.
“New investments include the M&G Pan European Dividend fund, the Global Emerging Markets fund, the M&G European fund and the M&G Global Real Estate Securities fund.”
M&G Managed Growth invests exclusively in other funds run by M&G, which helps to keep down costs. It has ongoing charges of 1.8 per cent.
As the spokesperson states, the fund also has exposure to direct equities. Microsoft and Red Fort Partnership were both top-10 holdings in November, but M&G cannot yet publish which companies Somel has added.
M&G Pan European Dividend is headed up by the FE Alpha Manager duo of Philip Cliff and Stuart Rhodes, who runs the higher profile M&G Global Dividend.
It has performed in line with its benchmark since its launch in July 2008. Europe is seen as one of the standout areas of value at present, especially in the context of dividend-paying companies.
M&G European is run by Greg Aldridge and Charles Anniss. Its record is weaker than its income-focused counterpart, underperforming its sector and benchmark over the short-, medium- and long-term.
Emerging markets are seen as another standout area when it comes to value, thanks to their severe underperformance compared with developed markets in recent years.
M&G Global Emerging Markets, run by Matthew Vaight, has managed to weather the storm better than most, and is ahead of its sector and benchmark since its launch in 2009, as well as over one and three years.
Performance of fund, sector and index over 3yrs
Source: FE Analytics
Gillian Tiltman’s £123m M&G Global Real Estate Securities fund invests in property companies and real estate investment trusts (REITs).
The fund, which is currently yielding 2.74 per cent, has had a miserable year, down 5.78 per cent over a 12-month period according to FE data. It is overweight emerging markets, which has contributed to its underperformance.
The fund has done better over the long-term and is ahead of its IMA Property sector over five years, with returns of 72.45 per cent.
However, it has consistently underperformed its FTSE EPRA/NAREIT Global Developed index benchmark.
"I think this move is very sensible. Having so much in one fund is not something I like," he said.
"When the fund was first launched [in 1994] M&G didn't have many strong equity funds, but these days they've got a number of top-rated portfolios with strong management."