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M&G sustainability range loses Square Mile ratings on fund merger plans

05 November 2024

Funds are unlikely to grow large enough to become commercially viable.

By Gary Jackson,

Head of editorial, FE fundinfo

M&G plans to merge three of its sustainable multi-asset funds into its Episode range, leading Square Mile Investment Consulting and Research to strip them of their ratings.

In a letter to investors, M&G said the £48m M&G Sustainable Multi Asset Cautious, £53m M&G Sustainable Multi Asset Balanced and £27m M&G Sustainable Multi Asset Growth funds will be merged away due to their small sizes.

“The merging funds have not attracted the expected level of interest from investors and as a result have not attained the size required to make them commercially viable,” M&G’s letter said.

“Following a review, we’ve concluded that there is little prospect for the funds’ growth in the foreseeable future.”

The plans are subject to shareholder approval and will be voted on at an extraordinary general meeting on Wednesday 6 November 2024.

If approved, M&G Sustainable Multi Asset Cautious and M&G Sustainable Multi Asset Balanced will be merged into the M&G Episode Allocation fund, while M&G Sustainable Multi Asset Growth will merge into M&G Episode Growth. This will take place on Friday 22 November 2024.

“The merging funds and the receiving funds included in this proposal are all globally invested multi-asset funds managed by M&G’s experienced multi asset team,” M&G said.

“The receiving funds, although not sustainability related funds, have been selected based on them sharing similar investment and risk characteristics as their respective merging funds and we believe the mergers to be the best option for investors as an alternative investment solution for the long term.”

Square Mile said it was “disappointed” to have to remove the three funds’ Responsible Positive Prospect ratings because of the plans.

In other moves, Square Mile has stripped the A rating from Jupiter Global Value Equity, following the departure of managers Ben Whitmore and Dermot Murphy earlier this year.

Whitmore and Murphy have launched a new boutique – Brickwood Asset Management – but will not run Jupiter Global Value Equity strategy on a sub-advised basis.

Square Mile explained: “Whilst the analysts acknowledge that the appointment of Brian McCormick as the fund’s lead manager represents some continuity of approach and ensures that the mandate remains internally managed by Jupiter, the fund’s A rating was predicated on the expertise of Whitmore and Murphy.”

Meanwhile, the CT Managed Equity & Bond, CT Managed Equity Focused and CT Managed Equity funds have retained their A ratings, having been under review since it was announced that manager Alex Lyle is to retire in April 2025.

Square Mile noted that the funds are managed with a team approach, co-manager Matthew Rees will continue to work on them and there are no changes to the investment approach, therefore the analysts are “comfortable retaining their ratings”.

The ratings agency has also awarded A ratings to The Diverse Income Trust (“an interesting option for investors seeking to diversify their sources of income from UK equities”) and JPM Europe Equity Absolute Alpha (“its returns are lowly correlated to stock market indices and the fund has an impressive record of protecting investors’ capital in stock market downturns”).

Schroder Global Sustainable Value has awarded a Responsible A rating. Square Mile said it offers a strong value investing proposition that is differentiated from many other sustainable funds, which tend to have a growth bias.

Finally, Fidelity UK Smaller Companies fund has been upgraded from A to AA rating while Fidelity MoneyBuilder Dividend and Fidelity Enhanced Income funds were upgraded from Positive Prospect to A ratings.

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