The board of M&G Securities has promised "fresh action" over two of its funds, which were singled out as having "constantly underperformed for investors for some time" in the firm's first Assessment of Value (AoV) report published this week.
M&G's AoV, which reviewed the value in 246 share classes across 50 funds, found that while the majority of funds had delivered for investors on various metrics, the £1.4bn AUM M&G Recovery and £134m AUM Pan European Select Smaller Companies funds had failed with respect to performance.
All fund managers offering funds in the UK have been publishing their first AoVs since the fourth quarter of last year, following the action taken by the Financial Conduct Authority in the wake of its 2018 Asset Management Market Study.
The process requires asset managers to prepare a report for fund boards, which, with the aid of independent non-executive directors, sign off on the report before a public AoV is produced.
There is no official template for how AoVs should be presented, but the FCA has provided a "non-exhaustive list of elements prescribed for the assessment" of seven criteria: quality of service, performance, management costs, economies of scale, comparable market rates, services and classes of units.
With regard to M&G Pan European Select Smaller Companies, the board said it was "unable to conclude that the fund has delivered value to its investors", having "consistently fallen short of its performance target".
The board rated the fund's performance as "unsatisfactory" and said action "must be taken by M&G to ensure it is better placed to achieve its objective going forward".
Commenting on the assessment, the fund's manager Michael Oliveros notes that the shares of smaller companies "are inherently more volatile than their larger counterparts" and the coronavirus pandemic "has had a particularly negative effect on the share prices of smaller European companies".
He added: "While some of our holdings suffered short-term disruption from the economic shutdown, we believe the recent sell-off has generally been indiscriminate, with risk-averse investors overlooking the longer-term, fundamental prospects of companies."
The board had an almost identical assessment to the Recovery fund, which manager Tom Dobell accepted had faced "an especially challenging year", adding that coronavirus-related volatility had exacerbate "the pattern of recent years, whereby investors have continued to prefer more solid, predictable stocks".
He said: "This trend has largely determined the fund's underperformance over much of the past decade."
In response, chair of M&G Securities Laurence Mumford said: "In the case of two funds that have consistently underperformed for investors for some time, we have determined that fresh action must be taken by M&G to deliver improved outcomes.
"We will update investors on the progress that has been made in the next annual Value Assessment report, or sooner if appropriate."