French (pictured) will step down from the five crown-rated M&G Global Basics fund with immediate effect and the portfolio will be handed over to his current deputy manager, Randeep Somel. Chelsea Financial Services’ Darius McDermott says that the fund will be a very different proposition without its founder and a focus on new sectors, adding that now would be a good time for investors to review its place in their portfolios.
"I think this move actually changes the game for investors who have been in the fund for some time," he said.
"Graham was talking about the fact that he doesn't own stocks in more sectors like technology as, if investors wanted exposure to areas such as these, there are plenty of other general global funds out there – Global Basics was trying to achieve something different."
"Now we are being told that Randeep Somel, who has taken on the lead manager role, is ideally placed to take the Global Basics concept up the curve of economic development and into services and technology companies."
"It may well turn out that he is the man to take the fund into what M&G sees as its next stage, but, as I said, I think it will be become a very different fund under his management," he added.
According to FE Analytics, M&G Global Basics has been the best performing portfolio in the IMA Global sector since French has been at the helm. It has returned 210.94 per cent over that time, compared with 46.67 per cent from the sector.
Performance of fund vs sector since Jan 2000
Source: FE Analytics
The fund also sits firmly in the top quartile over 10 years.
However, those returns have waned recently. Our data shows that it is a bottom-quartile performer in the sector over one, three and five years. That performance has been because French’s fund has registered bottom-quartile returns in each of the past three calendar years.
Source: FE Analytics
The manager made a recent public apology to his investors and said that his fund’s recent poor returns were due to his high exposure to emerging markets and commodities stocks and next to no exposure to media, technology or financials.
"All I can say is, we apologise. My money is in this fund, my parents’ money is in this fund and it was bad fund management. I cannot apologise enough," he said.
He added that his fund was not going to start buying technology stocks and pharmaceutical stocks even though those areas were likely to do better in the coming years.
However, just a few weeks later has come an announcement that the fund will change course into technology stocks under a new manager.
Rob Morgan (pictured), pensions and investment analyst at Charles Stanley Direct, says that it may be appropriate for some investors to sell.
He points out that the fund was for many years almost entirely focused on commodity-related stocks and so investors who still want that sort of exposure need to realise that this fund is no longer appropriate.Both French and the fund’s new manager, Randeep Sommel, say that the underlying philosophy and investment themes of the fund, by which they look for companies that can benefit from the changing consumption and investment patterns of the 3.5 billion people in the emerging world, will remain unchanged.
However, French says that now is the best time for him to step down.
"The 20-year view we had on economic development, the riding up of that curve, I think is more relevant today more than it was at the fund’s inception," he said.
"The problem for me as an individual is that the new wave of growth will be in areas such as technology, pharmaceuticals and financials. My qualities lie in the other sectors, early on in the growth of this fund."
"I’m not an expert in financials or technology and I think it is becoming quite clear to people that those areas are the future for emerging markets," he added.
Because of that, Morgan says that investors who hold units in the fund should not be too rash in their decision.
"I haven’t met Sommel, but I understand he has been at M&G for nine years and he has worked with French on stock selection for a long time, so I am not too worried about that," he said.
"This is a unique fund. You either buy into their philosophy, of the curve of economic development as they call it, or you don’t. If you bought into it with that philosophy in mind, then why would you sell it?"
"There aren’t many funds out there like M&G Global Basics, so there shouldn’t be any real impetus to sell. A lot of people will as a reaction to the manager change, but as a long-term investment, it is what it is," he added.
For those investors who do want to sell, FE Trustnet recently looked at a number of possible alternatives.
Morgan says that one of the best-suited like-for-like replacements is FE Alpha Manager Anthony Eaton’s JM Finn Global Opportunities fund.
"The fund is very much focused on tapping into increased wealth globally and especially in the emerging markets. Because of that, it holds major ports and logistics-type stocks, and big consumer brands, so it follows a similar theme to the M&G fund," he said.
According to FE Analytics, the £91.8m JM Finn Global Opportunities fund is a top-quartile performer in the IMA Global sector since its launch in January 2004, returning 163.39 per cent.
Performance of fund vs sector since Jan 2004
Source: FE Analytics
It is also a top-quartile performer over five years, but like the M&G fund, is a bottom-quartile performer over one and three years.
JM Finn Global Opportunities has an ongoing charges figure (OCF) of 1.83 per cent and requires a minimum investment of £1,000.
Despite the fact that the funds have very similar profiles, Morgan again urges investors not to rush into their decision about whether to sell their stake in French’s M&G portfolio.
"Though they hold entirely different stocks, it is trying to do a similar thing to the M&G fund. However, would I sell one to buy the other? Probably not," Morgan added.
FE Trustnet will be speaking to the manager of the JM Finn Global Opportunities fund, Anthony Eaton, later today.
