BNY Mellon reviews fund fees after value for money report

BNY Mellon Investment Management has instigated a fee review across a number of its funds after completing its value for money assessment.

The asset manager gave none of its 40 funds a ‘red’ rating, but seven received an ‘amber’ rating for issues relating to their cost or performance. BNY Mellon will reduce the charges on the funds under review by February and will also decide whether some also need changes to their mandates.

BNY Mellon is the latest asset manager to take action underperforming funds, following St James’s Place, M&G and Artemis, after new regulatory requirements forced firms to explain whether their products offered value to investors.

The £5.3bn BNY Mellon Real Return fund was the largest to come under scrutiny. Although it has top quartile performance over three and five years, BNY’s fund board found that it ‘requires further action’ after failing to meet its performance objective, while its charges did not offer value for money.

‘While we are pleased to see the recent performance in the BNY Mellon Real Return fund, it doesn’t negate the fact it has not consistently met its cash +4% objective,’ BNY said.

As a result, the group said it would be evaluating the fund’s ongoing performance and would attempt to reduce its retail share class fees in an effort to increase value for investors by February 2021.

The fund, managed by AA-rated trio Suzanne Hutchins, Aron Pataki and Andrew Warwick, has returned 15% over three years.

The £394m Global Absolute Return fund, managed by Steve Waddington, will also be monitored by the group after receiving an ‘amber’ rating on both cost and performance.

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The fund was hit particularly hard by the March market sell-off, falling by 13.7%, and has failed to meet its five-year performance objective, up by just 8.3% over that period. The group noted the coronavirus crash was not the only reason for the fund missing its target, after a negative return in 2018 too.

Both the £46m Inflation-Linked Corporate Bond and the £84m Global Multi-Strategy funds will be placed under review after receiving a ‘red’ rating for cost. Neither was given a red rating overall though after they met their performance objectives.

The BNY Mellon Corporate Bond fund was rated ‘amber’, showing some value, escaping a red rating as ‘remedial action has already been taken with positive results for investors’.

In October 2019, Insight Investment, which manages the fund, appointed Peter Bentley lead manager. The group said performance had since improved significantly.

However, BNY added that work is already underway exploring the possibility of restructuring the fund’s mandate, while it is also looking to reduce the total costs paid by investors by February.

Two more funds, the £71m Emerging Income and £115m Equity Income funds were also rated ‘amber’, with the latter being pulled up for ‘persistence of underperformance’.

The Emerging Income fund, managed by Zoe Kan and down 10.3% over three years, failed to meet its capital growth objective. A proposed merger with another Newton-managed fund to build scale and reduce costs was rejected by the shareholders.

The report read: ‘The board is now examining potential alternatives to better support its income-seeking investor base. As part of this, discussions on performance improvement with the managers are also underway. Action on performance improvements to be completed by February 2021.’

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