Why the M in M&G stands for ‘mediocre’

By its own telling, M&G is motoring along nicely.

It has a “resilient” balance sheet and is making “progress” against “all three pillars of a strategy” launched in March by new CEO Andrea Rossi.

Rossi was too busy talking to City analysts to explain to us what those pillars are today, leaving us to read the statement insisting that he remains “confident we have the right ingredients for success”. So far, so bland.

A quick look under the bonnet suggests this engine is stuttering however.

Assets under management are down by more than £9 billion in the year to June, though perhaps market rallies have improved things since then.

Rossi says he is looking to cut costs which means 200 staff are out as part of plans to save £50 million.

How are the funds doing? I asked SCM Direct to have a look. Alan Miller analysed £28 billion of their UK retail funds, looking at their performance against their peers.  Over the year to September the average fund was firmly second quartile, being placed 39 out of 100.

The performance has been in this region for the last three years, admittedly this is better than the previous three years when their funds would typically be ranked about 60 out of 100.

In Miller’s view the M in M&G should stand for mediocre.  M&G used to be an investment powerhouse with the long-term record of its Recovery fund normally shown prominently on posters and advisers extolling its virtues. It is now ranked 213 out of 220 funds over the last 5 years.

According to M&G 50% of its assets need to improve their investment performance. Most of the other 50% aren’t that great either.

If a fund group is doing well, the best advice is often to buy the shares of the company itself, not the funds. In this case, buy neither.