Fixed income
M&G (Lux) Optimal Income Fund – H1 2025 review – Duration is proving its worth
3 min read 13 Aug 25
Follow us
- Modest outlook for growth/jobs – with inflation subdued - should mean rate cuts will accelerate
- Duration-bearing assets look attractive from a risk-reward basis
- We have added at the long-end of the yield curve in light of curve steepening
- The strategy favours long-dated government bonds, certain credits on a valuation basis – while being underweight more expensive high yield names
- Portfolio positioning: duration at 7.0/7.1 years, spread duration at 4.0 years
- The strategy currently offers a yield of 5.5% in GBP, 3.2% in EUR, and 5.3% in USD1
Why we have a bias towards duration-bearing assets
We maintain that inflation is largely under control, and that growth may not be as robust as the market is pricing in. Moreover, if a recession were to occur (not our base-case), we anticipate interest rates would have to decline quite significantly. Governments today are generally overleveraged, which limits their capacity to stimulate the economy through fiscal measures, necessitating a stronger reliance on monetary policy, including more aggressive rate cuts.
1 Yield to maturity in base currency, as at 30/06/25. Data from M&G Investments.
The value and income from the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast.