Inflows for the group as a whole, however, increased 38% to £2.4bn due to strong performance from retail sales in continental Europe which brought total funds under management to £238.4bn.
European investors committed a record £2.9bn during the quarter, almost double the £1.5bn reported in Q1 2012. European funds under management now account for almost a third of the asset manager’s total £61.4bn.
Expected UK downturn
The decline in UK inflows is in line with expectations; the firm announced a 30% decline in UK business in 2012 compared to 2011, and said in its annual statement that it anticipated a further slowdown during 2013.
Since last summer the Strategic Bond Fund and the Corporate Bond Fund, managed by Richard Woolnaugh, have shrunk after the firm took the decision to curb inflows in order to safeguard performance.
In the first quarter results of parent group Prudential, the company said: "The substantially higher inflows from European investors more than offset weaker sales in the UK, evidencing the benefits of M&G’s diversified business model.
"A significant portion of these UK outflows result from our decision in summer 2012 to slow contributions into two of our market-leading corporate bond funds."Woolnough
The Strategic Corporate Bond Fund peaked at £5.8bn at the end of November, but has since fallen to £5.4bn. The Corporate Bond Fund had £6.6bn of assets in August but now has £6bn under management, according to FE data.
The performance of the funds over the past year is shown in the graph.
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Last summer also marked a change of direction in the fund portfolios. In June they held no investment grade or government bonds, but by July these investments accounted for approximately 83% and 8.8% of both funds.
BBB rated bonds had previously featured heavily in the portfolios, with around 40% of capital being invested in these assets but along with A-rated bonds, which accounted for around 30%, these were switched out by July.
