A rebrand and a broader investment remit for the five FE Crown-rated M&G Global Basics fund should not cause investors concern, according to several commentators.
M&G Investments announced proposals that will see the fund's investment policy changed, allowing it to invest up to 80 per cent of the portfolio in global equities with no restriction on sector, size, or geography.
The move represents a significant departure from the existing investment policy that requires the fund to invest at least 70 per cent of its portfolio in basic industries – the primary and secondary sectors – such as mining and manufacturing.
A further change to the investment objective has also been unveiled by the asset manager.
Under the proposals, the fund’s investment objective will change from long-term capital growth to a total return objective.
In the future, the fund will aim for higher total return than the MSCI All Country World index over any five-year period.
The proposed changes have already been approved by the UK regulator, the Financial Conduct Authority, but require further approval from investors.
Should the proposed changes be accepted by investors, the fund will be renamed as the M&G Global Themes fund.
Performance of fund under French
Source: FE Analytics
The fund was originally launched 1973, but later relaunched in 2000. The fund was managed by Graham French until 2013 when he retired, following a period of underperformance.
Then-deputy manager Randeep Somel took over the fund following French’s departure, before Jamie Horvat took over as lead manager in December 2015. Somel remains at the fund as co-manager.
Under French, the fund returned 239.22 per cent between November 2000 and November 2013, compared with a 42.42 per cent rise for the average IA Global sector fund.
However, in the three years leading up to his retirement the fund returned just 2.09 per cent, compared with a 29.14 per cent gain for the average sector peer.
With Somel in charge the fund failed to improve significantly and its assets shrunk. But since Horvat took over as lead manager, the fund has returned 47.689 per cent compared with a 35.7 per cent rise for the average IA Global sector fund.
Fund manager Horvat will continue to combine top-down and bottom-up analysis under the new remit, identifying themes arising from long-term structural shifts and trends.
Horvat will invest in well-run companies able to benefit from those themes, which are trading on attractive valuations and have good, sustainable growth prospects.
“Over recent years trends within the global economy have evolved so the removal of the restriction to invest mainly in basic industries will enable us to widen the themes in the fund,” said Horvat.
“We are keen to capitalise on sectors and industries that benefit from increased demand for healthcare and medicines to support ageing populations, water and waste management, clean energy and cyber-security.
Performance of fund since December 2015
Source: FE Analytics
“The original philosophy of the fund of exploiting global structural changes remains intact.”
The changing investment policy of the fund is already reflected in the portfolio, where the largest position is IT giant Microsoft, accounting for 5.3 per cent of assets.
Indeed, many of the fund’s top positions bear little resemblance to its benchmark, the FTSE Global Basics Composite index. Sectors such as healthcare and technology are overweights for the portfolio in comparison to the benchmark’s primary and secondary industry focus.
Patrick Connolly, head of communications at financial adviser firm Chase de Vere, said the changes should not come as much of a shock to investors given Horvat’s approach and the shift away from basic industries since taking over.
He said: “I think they’ve been looking to do that for some time. It probably got to the stage where the original name was outdated anyway.
“It used to be incredibly popular and successful fund… but then it went off the rails and underperformed and I think for some time it has been limited by the remit of the fund.”
Jason Hollands, managing director at Tilney, added: “To my mind, this is a sensible move. M&G Global Basics was a product that had its time in the market and did very well at the end of the commodities supercycle because of the mandate of the fund with a focus on basic industries.
“It always had an element of commodities running through it. But in recent years it struggled performance wise and went through a period of management change and saw assets of the fund shrink significantly.”
Darius McDermott, managing director of Chelsea Financial Services (pictured), said the proposals did not represent a fundamental change and he has confidence in the fund under Horvat. 
“The main thing is the new manager has been on the fund for a couple of years and is actually doing quite nicely,” he said. “It’s a little about wanting to get away from the fund’s history: it’s not a bad or a good thing.
“It’s certainly quite hard for new management getting away from the type of fund it was in the noughties, which, for a big chunk of, was the right place to be.”
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “In terms of the change in the fund mandate, I suspect a more generalist, global equity fund would probably see more demand than a specialist fund that looks a primary and secondary manufacturing and mining industries.
“It broadens the appeal of the fund. I think the difficulty is the managers now need to prove they can deliver performance of that strategy.
He added: “There are other funds like Rathbone Global Opportunities, managed by James Thomson, and Lindsell Train Global Equity, managed Nick Train and Michael Lindsell.
“Those are global equity funds that have very strong managers with long term track record of delivering for investors. From that point of view the new strategy has everything to prove.”
“If investors are in it, these changes are not a reason to get out; these are reasons to stay in,” added Connolly. “But it’s not a fund we use or are putting client money into.”