Graham French, former winner of both Morningstar Fund Awards and OBSR Honours, is to retire from bond fund house M&G, handing the management of more than £4 billion of assets in his M&G Global Basics Fund to his deputy Randeep Somel.
Commenting on French's retirement, Morningstar OBSR analyst Richard Whitehall said: "He has had an excellent career. An open and honest fund manager who very much had investors' best interests at heart."
The fund's Silver rating has since been placed Under Review by our analysts, pending a meeting with new lead manager Somel to discuss his plans for the fund.
From its re-launch in November 2000 to September 2013, the fund achieved annualised returns of 10% under French's tenure, "a fantastic return for investors during a period when the fund’s average peer was unable to muster anywhere close to double-digit returns," said Morningstar’s Oli Kettlewell. French's "excellent stock selection" underpinned the fund's fine performance, said Kettlewell.
But last month French apologised to investors for the more recent poor performance of the fund and told his shareholders that this was the first time the fund had seen net redemptions in 12 years. In June 2011 the fund had £6.6 billion of asset under management, but Morningstar data put the fund at just £4.1 billion as of November 15th.
M&G Global Basics has returned 6.1% so far this year, severely underperforming its peers in the Global Flex-Cap Equity category and the MSCI World USD index against which Morningstar benchmarks its performance.
The fund was recently downgraded by Morningstar analysts as performance waned amid portfolio changes. Morningstar analysts took their rating down a peg from Gold—our highest accolade—to Silver, with analyst Oli Kettlewell citing a widening in the fund's investment universe as the cause for the downgrade on October 31st.
Strong headwinds in the form of falling oil-and-gas and precious metals prices have caused French to modify the structure of the Global Basics portfolio recently, with exposure to metals and mining stocks sinking below 10% for the first time during French’s tenure, while the portfolio no longer has any exposure to the energy sector, Kettlewell has pointed out.
Meanwhile, French increased his exposure to the consumer staples sector albeit within the realms of his global basics mantra. "However, the portfolio is stretching the bounds of basic goods with the purchase of advertising agency Publicis (PUB), which illustrates the broader direction the fund is likely to take going forward," Kettlewell wrote in his October 31st analyst report.
M&G said today there will be no change to the fund's investment philosophy and that it remains an unconstrained, conviction-led portfolio of around 60 stocks.
New lead manager Randeep Somel has worked with French on M&G Global Basics for the past five years. French today said he was leaving shareholders in "very capable hands", adding: "I will be watching closely, not least because much of my own pension remains invested in Global Basics!"
Morningstar analysts will review their research and rating on M&G Global Basics but Kettlewell has been keen in the past to warn investors not to immediately jump ship on the back of a manager departure. "Fund performance is unlikely to fall off a cliff as soon as a fund manager leaves," he said in a previous interview. "So you have time to decide on what your next step should be, just as we have time to decide whether we think the new fund manager coming in is worthy of reinstating the rating."
