Ten alternatives to M&G Global Basics

M&G Investments fund manager Graham French announced his plans to leave the group yesterday, leaving Randeep Somal to manage the £4.3 billion M&G Global Basics fund.

After nearly 25 years with M&G, French said it is now time "to pass the baton to the next generation of fund manager".

Somel has been co-managing the fund with French for five years and will take over responsibility for the fund with immediate effect. French will remain an adviser for the next six months. The duo stressed the aim is not to change the investment mandate.

The fund will continue to adopt an unconstrained, conviction-led portfolio of around 60 stocks, with 60% of the M&G Global Basics fund invested in the middle of the economic development curve; mostly consumer and industrial stocks. Somel will continue to reference the curve of economic development - an investment model devised by French at the fund's launch 13 years ago.

Commenting on the fund's performance, Jeremy Le Sueur, managing director of 4 Shires Asset Management, says it has not been good for such an unconstrained mandate.

Le Sueur says: "The fund has risen 38%, including income, over five years, which seems pretty miserable. In addition, the 1.6% ongoing charge seems extortionate for such pedestrian performance."

Alternatives to M&G Global Basics fund

While existing investors may be happy to stay put and await a turnaround in performance, others will want to consider others.

Le Sueur recommends the following two investment trusts as alternatives to the M&G Global Basics fund.

The £2.4 billion Scottish Mortgage Trust, managed by James Anderson and Tom Slater, is favoured by Le Sueur due to it also being unconstrained. Trading at a small 3-4% discount, the trust has a healthy slug of exposure to emerging markets.

Le Sueur says: "We like this global investment trust because, like the Global Basics fund, it is unconstrained, but has a circa 0.5% total expense ratio and is up 48% over three years, vs. 7.5% for M&G Global Basics. James Anderson and Tom Slater have a good track record and considerable flexibility with regards to asset allocation."

He also likes Bankers Investment Trust, run by Alex Crooke at Henderson Global Investors. Le Sueur says: "I met Alex recently, and in discussion (admittedly about Henderson High Income which he also runs) he came across as a sensible fund manager, able to hold contrarian views and with good macroeconomic antennae."

Patrick Connolly, certified financial planner at Chase de Vere, says: "French is the latest in a line of high-profile managers who have recently announced they will be moving to pastures new. This might not be a great surprise following a 25-year tenure at M&G and the recent underperformance of his M&G Global Basics fund.

"Despite this underperformance we had previously maintained our faith that French could turn the performance around and continued to recommend the fund for some client portfolios."

Connolly recommends the following alternative funds: the £411 million Aberdeen World Equity, the M&G Global Dividend fund and the Threadneedle Global Select fund.

Darius McDermott, managing director of Chelsea Financial Services, says:"Global Basics was built and launched by Graham with a certain investment approach in mind and, while that doesn't mean a fund can't change direction - indeed we expect managers to be pragmatic - I think this move actually changes the game for investors who have been in the fund for some time."

McDermott says while there are not many comparable open-ended funds to M&G Global Basics, investors could consider a number of alternatives. They include the £2.1 billion Pictet Global Mega Trend Selection, Sarasin AgriSar and First State Worldwide Equity. For more targeted exposure McDermott suggests the £12.4 million UBS Asian Consumption fund.

Both Connolly and McDermott have moved the M&G Global Basics fund from a 'buy' to 'hold'.

Ben Gutteridge, head of fund research at Brewin Dolphin, says he would not recommend anything similar as he is cautious on the 'commodity complex' and other areas of the market geared into emerging market performance. "Investors are better off investing in US, European and Japanese equity funds in order to benefit from the developed market recovery that is firmly underway.

"At sector level we retain a positive view on financials and have recently initiated a 'buy' on the Aptus Global Financials fund. Though negative regulatory surprises keep rocking the boat, and are likely to continue generating volatility, the fundamentals look much improved in this space, and valuations look compelling - particularly in the US."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.