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Why M&G's corporate bond fund makes A-rated Clive Beagles sad

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Why M&G's corporate bond fund makes A-rated Clive Beagles sad

JOHCM UK Equity Income manager Clive Beagles is concerned the retail distribution review (RDR) will only serve to make behemoth funds larger, and is backing Standard Life over Hargreaves Lansdown as a beneficiary of the new regulatory climate.

Beagles, who is Citywire A-rated and a Citywire Selection pick, said platform Hargreaves Lansdown was not currently on his radar as he views its valuation as rich, while highlighting the lack of clarity on the impact the RDR could potentially have for the Bristol-based company.

‘It is not necessarily clear how the RDR works out for them. We own Standard Life, which is a fast performing share and is much cheaper,’ Beagles said.

He also believes there is less downside risk associated with Standard Life in comparison to Hargreaves Lansdown, and is particularly positive about the investment Standard Life has made in its platform and in auto-enrolment solutions.

His comments came ahead of the firm's announcement on Wednesday morning that it has cut 139 jobs across its UK and Europe business.

Commenting on the potential landscape for fund management groups post-RDR, Beagles said he is concerned the RDR will simply cause the large funds that dominate their sectors to grow larger still.

He puts this down to commonality increasing between model portfolios run by wealth managers and IFAs on the back of more stringent due diligence processes. In this space, Beagles owns Aberdeen Asset Management.

‘The largest four to five funds have dominated each individual sub-sector and the RDR accelerates that,’ he said, highlighting the fact that in Asia Pacific equities the top three houses run around 70% of the assets in the sector.

‘Model portfolios created by wealth managers and IFAs have all got the same bloody funds. I think it is quite dangerous,’ Beagles added.

Similarly, he is concerned about the amount of money that has gone into corporate bond funds, particularly the M&G Corporate Bond fund.

‘Equities – regardless of whether GDP growth is 2,3 or 4% - continue to look so much cheaper than the bond alternatives. We all read how much money M&G take on a monthly or quarterly basis and we all know that money is going into their corporate bond-type product.

'That really saddens me. It is not that we want to be running a lot more money, but all the equities we own that have corporate bonds, the equities are yielding more than the corporate bonds and these are equities where the dividends are growing in real and nominal terms.'

'Why would you buy a Centrica 30-year plus bond yielding 4.3% when you can buy the equity on a yield of 5% today and that dividend will grow RPI plus 3-4%? And there are countless examples like that,’ he said.

Elsewhere, the manager remains bullish on domestic-orientated stocks, such as Restaurant Group, and continues to back turnaround stocks 3i and ITV.

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