M&G Optimal Income loses 40% of assets

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The M&G Optimal Income fund has lost close to 40 per cent of its assets in a 12-month period, mostly from the Euro-hedged retail share class, according to Morningstar fund flows data.

The fund had €17.9bn (£15.18bn) in assets in June, compared to €29.6bn a year ago. Its assets peaked in March 2015 with €33.8bn net assets.

Morningstar research analyst Ashis Dash says underperformance has contributed to outflows, but also points to the fact that the majority of assets are held in the euro-hedged share class.

“European investors, we believe, are driven a bit more by short-term performance and can be quite active in asset allocation. Given its performance in the last couple of years they may have moved out of the fund,” he says.

The fund has returned 3 per cent in the past year, according to Morningstar data.

Dash attributed the fund’s underperformance to Woolnough’s preference for short duration.

“This positioning in the portfolio has been there since around late 2011. In the first couple of years when you had yields moving up it was quite beneficial. From 2014 onwards you’ve had 10-year gilt yields move down and holding a short duration stance then is not particularly helpful,” he says.

Dash says the fund has got rid of “a lot of issuers” due to the outflows, which may have been bought because the fund was so large.