Pathway 3

In order to understand the relationship between risk and reward, it’s helpful to first understand the different types of investment (known as ‘asset classes’). 

The four main investment types are: 

• Shares (also known as ‘equities’) give investors a portion of ownership of a company. 
• Commercial property includes ownership of retail, office, and industrial property.
• Bonds (also known as ‘fixed-interest’ investments) are loans companies or governments take when they need to raise money.
• Cash refers to currency, deposit accounts (bank savings accounts), and other cash equivalents.

Each of the four asset classes offers a different level of risk and potential reward, so the split of these assets determines the risk level of the fund and therefore the potential for reward.

To help you understand a fund’s level of risk and reward we give each fund a risk rating. Our risk ratings are between 1 and 6 (with 1 being a lower risk and 6 being a higher risk).

• The lower risk and potential reward funds are likely to be less volatile, so will be invested in areas which are less likely to fluctuate in value.
• The higher risk and potential reward funds are likely to be more volatile, so will be invested in areas that are more likely to fluctuate in value.

PruFund is what we refer to as a ‘smoothed’ fund. This means that it helps protect your money from some of the short-term ups and downs of the markets and gives you a smoother return. We call this smoothing. PruFund is invested in our With-Profits Fund, one of the largest of its kind in the UK. There may be times when we need to suspend smoothing; this is to protect the With-Profits Fund and therefore all With-Profits policyholders. We would only expect to do this in highly unusual circumstances.

PruFund aims to grow your money over the medium to long term (at least 5 to 10 years), with a view to providing you with a smoother investment journey. That’s thanks to our smoothing mechanism and multi-asset approach; achieved through being part of the With-Profits Fund. This aims to spread the risk to your investment, which can help provide more stable returns.

When you invest in PruFund, your money is pooled together with other investors. This pool of money is then used to buy a large range of different types of asset classes, which helps to offset poor performance in one asset type with good performance in another. Pooling money also brings about other benefits, like having access to a wide range of global funds that individual investors may not otherwise be able to access. And because there are many investors the costs are spread out too. Like most investments, the value of the underlying funds change daily, up or down. PruFund’s smoothing mechanism aims to reduce the impact of these movements over the short term, using Expected Growth Rates and where required, Unit Price Adjustments, to deliver a smoothed investment journey. 

A key benefit of PruFund is that it’s actively managed by teams of investment experts. Our experts continually assess the data and performance to make ongoing decisions about where to invest (and where not to) and they look out for new opportunities. To achieve the right mix of assets at any given time, they also have a regular process of monitoring and adjusting the mix for any market or fund changes.

For the range of PruFund funds, what you receive will depend on the value of the underlying investments, our charges, the smoothing process, if there is a guarantee and when you take your money out. There may be times when we need to suspend smoothing; we expect this to be in highly unusual circumstances and is designed to protect the With-Profits Fund and those invested in it.

We recommend watching this 4 minute video to help you understand some of the key aspects of PruFund in more detail.

Please refer to the following guide for more information: Your With-Profits Plan – a guide to how we manage the fund (PruFund range of funds)

• All funds have an objective set out by the fund manager.
• This fund aims to achieve long-term total return (the combination of income and growth of capital).
• The fund is actively managed and aims to limit the fluctuations ('volatility') your investment experiences, after allowing for smoothing, to 10% per annum over the medium to long-term.
• There is no guarantee that the fund will achieve its objective of managing the volatility to the target level.

What this means

• PruFund Risk Managed 2 fund aims to maximise your medium to long-term returns (5 to 10 years or more) with a medium level of risk.
• It also offers you some protection from the short-term ups and downs of the market by aiming to deliver smoothed returns.

As we have seen from the fund objective the volatility limit for your fund is 10%.

• This means the aim is to try and ensure the fund doesn’t fluctuate by any more than 10%.
• If that does happen - there is no guarantee it will always be within the limits - the fund manager will take action to bring it back within the guidelines.

The value of an investment can go down as well as up and the value in the future may be less than the amount invested.

• For the range of PruFund funds, what you receive will depend on the value of the underlying investments, our charges, the smoothing process, if there is a guarantee and when you take your money out.

PruFund Risk Managed 2 invests in a wide range of assets by investing in our With-Profits Fund. This means that your money is spread across different asset classes. Spreading your investment means poor performance in one asset type can be offset with good performance in another as you don't have all your eggs in one basket. This is known as multi-asset investing.

Here are the asset allocations for PruFund Risk Managed 2 as at 31 December 2024. Note that these are reviewed regularly and may vary from time to time, but will always be consistent with the fund objective.