M&G Managed Growth Fund is posting top quartile performance over three years, one year and three m...
M&G Managed Growth Fund is posting top quartile performance over three years, one year and three months, under the guidance of fund manager Graham French.
French took over management of the £543m fund, which has traditionally been a poor performer, from David Hutchins in October 1996.
Over the three years to 6 September, the frA-rated fund is ranked five out of 34 in the active managed sector; over one year it is ranked seven out of 50 funds, and over three months it is ranked six out of 58. Prior to French taking over of the management of the fund, the portfolio had, in performance terms, lingered around the mid-range of its peer group since its launch in 1994.
The fund of funds' objective is to achieve long-term capital growth through investing in both UK and overseas markets. In doing so, it retains its compliance requirements with regard to Pep status.
One of the big attractions of this portfolio is its zero front end management charge. As most investment funds charge around 5% at the front end.
Since taking over management of the fund, French has adopted a more aggressive stance than his predecessor, reducing the fund's historically dominant UK exposure and introducing a more flexible and diverse geographical spread of assets within the fund.
French describes M&G Managed Growth as a two-layered cake. Layer one is the asset allocation decided by himself in terms of what M&G unit trusts he will hold.
The second layer is the performance of the underlying unit trust, which is totally reliant on the fund managers who control those funds. "The fund is essentially the combination of my expertise and the performance of my colleagues," French said.
M&G Managed Growth is Pepable, which slightly skews the asset allocation against other funds in its peer group.
Outside the exposure to the UK and Europe, French determines asset allocation not by geography, but by determining sector trends that will lead to outperformance. "We shy away from geographical asset allocation and we have done so for a number of years. Geographic asset allocation is dead and I do not believe you can add value through that approach. There are thousands of economists, endless fund managers, brokers, you name it, who will tell you whether Japan is going to outperform the US and so on.
"I think that's impossible. It is a zero sum game, few people can do that. How many people correctly predicted the US market for the last five years for example? Very few."
French said the decision was made about five years ago not to "mess around" allocating funds along geographic lines; rather he concentrates on identifying sector trends. "Having said that, we added to Asia, in the depths of a crises in 1997 when everyone else was panicking, because we considered it to offer attractive valuations. Likewise, we bought into Japan 18 months ago, again because of attractive valuations and are selling many of our holdings this year."
Selecting what unit trusts to hold is a challenge given that most of M&G's funds are geographically-based, namely the UK, the US, Europe and the Far East.
An increasing number of M&G funds are however becoming sector oriented. For example, last year M&G launched its Global Technology and Innovation Fund.
French has to look at the underlying sector allocation of funds. M&G Managed Growth is positive on technology and French will lean toward M&G unit trusts that are also biased toward this sector.
"The M&G European Smaller Companies fund is very heavily weighted toward technology. It is a very aggressive fund. Same with the UK smaller company fund. Combine those two alone at around 8% each and there is 16% already that is almost solely technology related."
British Opportunities, is another big holding, representing 8% of Managed Growth, and it also has a significant technology holding.
Although the M&G stable consists of some 40 funds, Managed Growth holds just 23 of those. French says he has tended to shy away from funds like M&G Dividend fund, a UK equity income portfolio, that does not fit his growth criteria, despite changing its remit to be more growth-oriented.
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