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Can the £2.2bn M&G Global Themes fund keep up its recent outperformance?

27 October 2022

The fund pulled out the bottom quartile to become a top performer over the past three years, so Trustnet finds out whether experts expect this to be sustained.

By Tom Aylott,

Reporter, Trustnet

The M&G Global Themes fund underperformed its peers in the IA Global sector by quite a stretch over the past decade, but its fortunes took a turn in the past three years as it climbed into the top quartile.

Those who held the fund over the past three years would benefitted from a total return of 32.1%, which is 7.3 percentage points better than the average IA Global fund. As the chart below shows, this is contrast to the relative performance over 10 years, when the fund lagged behind the sector and the MSCI AC World index by a wide margin.

With such a stark change in performance over the decade, investors may be wondering if M&G Global Themes ‘s recent returns are sustainable or whether they should consider selling in case performance dips again.

Total return of fund vs sector and index over 3yr and 10yr

Source: FE Analytics

The fund’s rebranding from M&G Global Basics in 2017 was a significant turning point for the portfolio, according to Jason Hollands, managing director of Bestinvest.

Under its original mandate, the fund had a high exposure to commodities which led to high returns during the commodities super cycle at the start of the century but dragged performance down when oil prices peaked in 2011, hence the poor long-term record.

The new strategy in 2017 and structural changes made by Alex Araujo when he was appointed manager in 2019 allowed the fund to take a more flexible approach.

Hollands said that the fund’s thematic style helped it stand out in the crowded IA Global sector, which is filled with “more generic, bottom-up stock picking global funds”.

“The fund has a good track record under the current strategy, which has been in place now for five years and so there is certainly no reason why long-term investors should feel the urge to sell it, so in my view the fund is at least a hold,” he added.

However, the M&G Global Themes fund would not be Holland’s first choice in the global equity space. He prefers the Guardcap Global Equity and Fiera Atlas Global Companies funds because they are both “managed by teams that have long track record successfully executing their strategies”.

Nevertheless, one of M&G Global Themes’ main appeals is its underweight to US equities which differentiates it from other US-heavy global funds, according to Louis Tambe, senior investment analyst at City Asset Management.

Its exposure to the region is 16.3 percentage points lower than the MSCI ACWI benchmark at 46.1%.

Instead, it favours a 10.7 percentage point overweight to Canada (accounting for 13.8% assets) and 6.6 percentage point higher exposure to Germany (8.4% of regional exposures).

Tambe said: “The fund is multi-thematic and diversified across themes, sectors and geographies so can be held as a ‘core’ equity holding unlike some other thematic funds which tend to have more of a narrow focus.

“The fund would be a suitable buy for an investor looking for this type of exposure in their portfolio.”

Tom Sparke, investment director at GDIM, was a fan of the fund’s updated mandate - he said that the new strategy had improved environmental, social and governance (ESG) credentials and protected the portfolio from some “serious downturns” over the past few years.

Sparke added that the M&G Global Themes fund is worth buying for new investors, with its streak of above average returns unlikely to slow soon.

“While the fund has not been operating under its current mandate for a very long time, the period in which it has has been fruitful and I would be positive on the outlook for the fund,” he said.

Likewise, Darius McDermott, managing director of Chelsea Financial Services, had confidence in the current management team’s ability, stating: “We are big supporters of the global team, particularly the M&G Global Listed Infrastructure fund, which Alex also runs.

“We see no reasons why the fund’s improved fortunes cannot continue with this team behind it.”

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.