Investing

in a long-term approach

The approach to fund development by our UK and Europe asset management business, M&G, reinforces the business’s relentless focus on the long-term interests of investors.

M&G has strict criteria for new fund propositions, with investment management capabilities at its core.

Chris Jackson, M&G’s Product Director, says: “In a sense, sustainability is what our success is all about. If our funds were not fair, transparent and sustainable, we would soon be found out by the market.”

All new fund proposition suggestions are subject to a rigorous process of review and appraisal to ensure there is a clearly defined market for it, and, importantly, we are able to support it with our investment management capabilities. In marked contrast to many other investment houses, many people at M&G have been with the business for more than 20 years and this wealth of experience is highly prized. It’s an approach that clearly finds favour with investors, who regularly rate us as the most trusted brand12. One of the oldest and best selling M&G equity funds, the M&G Recovery Fund, was launched in 1969. Since then it has been the responsibility of only three investment managers. M&G’s best selling equity fund in 2010, the M&G Global Basics Fund, has had the same fund manager since its launch in 2000.

1969

The year the M&G
Recovery Fund
was launched

“Sustainability is what our success is all about. If our funds were not fair, transparent and sustainable, we would soon be found out by the market.”

WHAT DRIVES THE FUNDS WE CREATE?

  • Our investment capabilities
  • Making sure we have the best product
  • Maximum exposure through the appropriate distribution channels

Chris describes how new funds evolve and the series of assessments that each has to undergo before it will be put to the market: “While we look at the market for changes in demographics, changes in buying patterns, where new fund propositions are emerging and so on, it’s not the market that fundamentally drives the funds we create. It’s our investment capabilities, and the individuals, which are critical. The rest is about making sure we have the best product and maximum exposure through the appropriate distribution channels. That leads us to a much more focused fund range. Every single fund that we take to the market has a very strictly defined mandate: to either match an existing opportunity in the marketplace, or create an unrealised aspiration.”

Ideas for new funds can come from a number of sources. For example, they may arise from distribution teams who spot opportunities in the market. The investment management floor itself also generates a constant flow of ideas. Chris’s team is responsible for assessing the feasibility of these new ideas and, if appropriate, progressing them through the development process. He explains how this works: “What we do initially is stress-test and question the proposed investment proposition, drawing in other expertise such as investment management, legal, and marketing, as well as dedicated product experts who sit in their respective technical teams. If we agree to proceed further, the idea is then assessed by sales teams, with their feedback incorporated into a further stage of development.”

The next step in the process is a confidential review with buyers. If the product is considered ready for market, it then goes through a process of internal sign-off to ensure all technical considerations have been properly assessed and addressed. This involves a series of committees who evaluate each product thoroughly.

STEPS TO MARKET

  • Stress-test and question the proposed investment proposition
  • Assessment by sales teams
  • Confidential review with buyers
  • Internal assessment and evaluation for final sign-off

“A new fund proposition may push many of the right buttons,” says Chris, “but if it doesn’t meet our strict criteria we won’t move ahead. Sometimes we’ll put it on the shelf, keeping it under review for a possible future launch. Even if there’s a very strong case we still won’t progress the idea if we don’t have an investment manager with the experience to manage the product over the long term.”

Importantly, M&G’s strict assessment criteria does not preclude innovation. In fact, some of M&G’s most recent products have been first to market. For example, M&G launched the Optimal Income Fund in December 2006, the first truly flexible bond fund when investors were looking to use our expertise to create a dynamic fund offering a flexible exposure to the bond market.

Because M&G does not take a ‘house view’ of economic trends and indicators, the business is able to create funds and products that cover a broad range of clients’ investment strategies. A recent example of this was the launch of the M&G UK Inflation Linked Corporate Bond Fund, in 2010. This innovative product allows investors, concerned about inflation in the UK economy, to invest in a range of corporate bonds structured to benefit from a high inflationary environment. Early sales flows suggest the proposition has struck a chord with investors.

“A new fund proposition may push many of the right buttons, but if it doesn’t meet our strict criteria we won’t move ahead.”

HOW THE M&G RECOVERY FUND HAS PERFORMED

Further reading
For more information visit
www.mandg.co.uk

12 TNS consumer tracking (September 2010) and Discretionary Asset Managers, ORC Investrack (August 2010)