After a difficult year or so, the £8.7bn fund has had an underwhelming start to 2015 putting the prospect of its continuing long-term outperformance and huge growth in assets back into question.
Since manager Stuart Rhodes took over the reins in 2008 the fund has beaten both sector and index with returns of 106.67 per cent while the average IA Global fund made 72.73 per cent and the MSCI AC World index gained 92.01 per cent.
Performance of fund, sector and index since July 2008
Source: FE Analytics
However, the second half of 2014 was a testing time for the fund: it ended the year bottom quartile of its sector and 2015 has been even tougher with the fund falling to bottom decile.
Performance since 1 January 2014
Source: FE Analytics
A few months after the fund saw significant outflows of several hundred million pounds, Rhodes admitted “complacency in stock selection” in an open letter sent to investors in January 2014.
"Upon reflection, there may well have been some complacency around the number of companies where oil plays a role regardless of the actual economic effect. Certainly, our sensitivity analysis around our two deep-water companies [Prosafe and Seadrill] could have been more robust," Rhodes said in the letter.
For the longer term investor, despite recent total returns having been disappointing, dividend growth has been healthy and this should be reflected in future performance due to the power of compounding returns, Thierree (pictured) says.
“We look at the fund with a long-term view and we believe the process is sound and reliable. The fact it had a bad year is not something we are worried about. The magnitude of the losses last year allowed the team to think twice about how they implement the strategy, which is good because fund managers should always reassess this,” Thierree said.
“But once again, this is a short-term issue and there are good long-term stories in the portfolio.”
FE data shows the fund outperformed its IA Global sector average and MSCI AC World benchmark in every calendar year between 2009 and 2013, leading to top decile returns until the start of this year. Rhodes has also shown skill in periods of down markets such as in 2011, when the fund was in the top decile of performance having lost just 2.36 per cent compared to the index’s 6.66 per cent fall.
Income paid out to investors has also been strong. An initial £10,000 investment when Rhodes took over would have generated an income stream worth a total £3,164.61.
Income earned since June 2008
Source: FE Analytics
Rhodes’ outperformance ensured the fund saw steady inflows with the fund swelling to £2bn in assets within three and a half years of launching. By the end of 2013 this expanded to a whopping £9bn, leading some to question whether size was impacting performance.
The manager has assured investors that his process has not been impacted by the size of the fund on a number of occasions, including in his most recent letter. He says his preference for large and mega caps such as British American Tobacco and Johnson & Johnson is evidence of this and means he can put many billions of pounds to work without an impact on liquidity.
Thierree backs this claim but says this may not stop further outflows from agitated investors.
“In the short term we are likely to see some outflows because investors tend to sell funds when after a short period of underperformance – wrongly. But the liquidity of the fund is rather good. Currently the fund is overweight the UK and with the general election coming this could induce some noise in the performance,” she said.
However, size and its impact on liquidity and by extension performance were a concern for FE Trustnet’s head of content Joshua Ausden, who dropped the fund back in January and remains un-invested, having held it for several years in his personal portfolio.
“The reason why I’ve decided to sell is because the underperformance has coincided with the spike in assets, which in the past has acted as a warning sign. More assets mean less flexibility, and the faster the pace of inflows the harder it is for managers to handle – particularly for those with a sizeable portfolio turnover,” he said.
“It could well be a coincidence, of course, but since these reassurances were first made, the fund’s performance has deteriorated. Bottom quartile returns of 2.34 per cent in 2014 mean it is now bottom quartile in its IA Global sector over one and three years, as well as over one, three and six months,” he added.
M&G Global Dividend has a clean ongoing charges figure of 0.91 per cent and yield of 3.08 per cent.