Martyn Ingram of The Investors Partnership, is keeping a watchful eye on the funds M&G is recommending to buy via the Transact platform
THE ARRIVAL OF Transact and other wrap platforms in the UK presented an immediate threat to business flows for many large asset management groups, particularly those with major retail investor customer bases to protect, such as M&G.
Like other established asset managers, M&G had to choose to either embrace the changing environment by facilitating the migration of their investment business onto wrap platforms, or to defend against the potential loss of direct business by not enabling investors to transfer their M&G fund holdings easily onto the platforms.
All wrapped up For M&G, and the other major established retail players, this was a difficult commercial call.
They knew that once assets were transferred onto the external wrap platforms it would become more difficult to maintain ongoing customer loyalty.
They also knew that existing investors would have less contact with them once valuations were being generated externally and the holdings were being bought or sold remotely through nominee names.
While new investors would increasingly buy funds via the platforms, existing investors in underperforming funds would be among the first to start migrating to the platforms, and they might replace M&G holdings with repurchases in funds managed by other asset managers, including the emerging groups, such as New Star, as well as smaller boutiques that were able to exploit the opportunities presented from promotion of selected funds, or classes of funds, via the wrap platforms.
M&G's legacy business was created by focusing on directly-held investments (rather than sales via platforms).
M&G has had more than one golden era, as well as difficult times, since it launched its first unit trust almost 75 years ago.
Today, M&G manages more than £125bn of assets, including UK and European investments for the Prudential group, and has a team of more than 40 fund managers, including some highly rated managers.
Property Which funds do M&G believe your customers should consider for investment via Transact? Via the platform, M&G would like your customers to consider the merit of one offshore fund, M&G Property, and three onshore funds, M&G Global Basics, M&G Capital, and M&G Recovery.
M&G Property is a £340m Guernseyregistered unit trust managed by a team led by John Cartwright of Prudential Property Investment Managers (PruPIM).
The fund was launched in March this year with £95m of assets, being a small proportion of the £14bn of assets managed by PruPIM.
Property funds are an easy sell to retail investors and there are all sorts of arguments being put forward as to why investors should hold property in their portfolios.
One question I would ask is, 'How exposed are your customers to property at the moment?' My guess is that many are already heavily invested in property (via their homes, including financial gearing as a result of any mortgages).
They may achieve more diversification within their property assets by including an investment in a commercial property fund, such as M&G Property.
However, unless they rent rather than own their homes, is it wise to increase their exposure to an asset class that is not always easy to sell? If your customers do wish to add to their property exposure, then this fund, which is designed to be 100% invested in commercial property, is one that they could hold via the Transact platform.
Funds to watch M&G Global Basics is a £600m fund that invests in primary and secondary basic industries around the world.
The fund has more than tripled in size since the beginning of 2004, and it is managed by Graham French, who has been with M&G for more than 10 years.
The fund performed well in 2003 and 2004 relative to a composite benchmark that M&G regard as representing the fund's investment universe.
The fund's composite benchmark, rather than the fund's IMA peer group, should be regarded as the measure for the performance success of this fund.
M&G Capital is a growth fund that was managed by David Jane from September 2002, when he also became head of equity investment at M&G.
Today, the fund is managed by Mike Felton, who recently joined the group from F&C.
The portfolio, which typically holds 30 to 40 stocks, has many similarities to F&C UK Prime, which was launched in April 2001 as Royal & Sun Alliance UK Prime with Mike Felton as the manager.
M&G Capital was launched in 1971, and it had a period of significant underperformance between 2000 and 2002.
The performance results since then have not been strong; however, M&G have high hopes for the fund now that Mike Felton has taken on the mandate.
His appointment has certainly put the fund back on my watch list.
M&G Recovery is managed by Tom Dobell, and it is regarded as a flagship fund for M&G.
Since its launch in 1969, there have been many occasions when the fund has delivered good performance relative to the FTSE All-Share Index.
At the start of 2004, the fund size was just over £1bn; today it is little changed, even after strong performance results over the last 18 months.
The fund holds some blue chip investments, but recovery opportunities are most likely to be found in mid-cap and small-cap stocks, so this is where the portfolio has its strongest focus.
The whole picture While M&G may wish you to consider these four funds for investment via the Transact platform, I would encourage you to look over the full range of M&G funds, so that you have an overview of exactly what is on offer.
There was a major reorganisation of M&G's fund range several years ago, but their funds have been accessible to UK retail investors for a considerable time, so you can still examine some longerterm past-performance results.
Even with one new fund, M&G North American Value, you can track the record of the fund manager, Rich Brody, as he has managed Prudential North American fund for more than 12 years.
Three examples of compensation rule issues
Buying in baskets
Scam victims lost average £91,000
Stepped down following MBO
Helped by rising oil price