S&P “concerned” over M&G’s Woolnough fund size

Standard & Poor’s (S&P) is “becoming concerned” by the increasing size of Richard Woolnough’s £5.5 billion M&G Optimal Income fund, according to its latest report on the portfolio.

Richard Woolnough
Richard Woolnough

The ratings agency points out that the fund’s size has continued to “increase significantly” over the past year, when it doubled in size to pass the £5 billion mark in July.

“In normal market conditions £5 billion should not be a problem given that the portfolio is primarily invested in liquid, quality assets,” according to its latest report.

“However, in the more risk-averse conditions prevailing in August 2011, Richard Woolnough reported that it was difficult to move more than 10% of the fund at once, despite the support of a large team and making use of derivatives. So, we are becoming concerned about growth in fund size.”

The M&G Optimal Income fund retains its S&P AAA, due to the agency’s “high regard” for Woolnough and the fixed-income team at M&G. But the group adds: “We will be monitoring fund size closely.”

S&P also draws attention to the recent inflows into Woolnough’s £5.2 billion M&G Corporate Bond fund and his £4 billion M&G Strategic Corporate Bond fund.

However, the agency says it is “less concerned” by the increase in the size of these two portfolios, as they have less need to actively shift asset allocation to be competitive within their peer group. Both funds maintain an S&P AAA rating.

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