M&G (Lux) Dynamic Allocation Fund

A flexible multi-asset fund designed to perform over the long term

The 'Episode' investment philosophy

The M&G Multi Asset team believes that financial markets often move irrationally because investors allow their emotions to affect their decision-making. Using a robust valuation framework, they examine the economic environment to find occasions – ‘episodes’ – where investor behaviour has moved asset prices away from their long-term fair value. 

The fund has a highly flexible investment approach with the freedom to invest in different types of assets issued anywhere in the world and denominated in any currency. The fund will typically use derivatives to gain exposure to these assets. As well as the ability to take long and short positions, the fund managers can go negative duration. Asset allocation is expected to be the main driver of returns over time.

Fund proposition

The fund aims to deliver a positive total return (the combination of income and capital growth) of 5-10% on average per year over any three-year period by investing globally in a range of assets, including equities, fixed income and currencies. The fund managers expect the fund to have an annualised volatility of between 5% and 12%.

The fund will normally invest within the following net allocation ranges, which reflect the sum total of long and short positions.

	Net allocation range	Neutrality
Equity	20-60%	40%
Fixed income*	0-80%	50%
Other**	0-20%	10%
Currency	Min. 30% in EUR, Min. 60% in EUR, GBP and USD combined

*Excluding cash and cash equivalents.

**Mainly real estate-related securities, convertibles and infrastructure assets.

Neutrality is the positioning of the fund if all assets were trading at their ‘fair value’. This can be thought of as a strategic asset allocation. In an ideal world, when all assets were trading at their ‘fair value’, then neutrality would be how a fund was positioned, given its strategy and risk profile. However, assets seldom trade at fair value, so the actual allocation of the fund may not match the neutral position.

Reasons to invest

• The fund is designed for investors pursuing a dynamic approach to capital growth.
• The fund has the potential to meet investors' expectations across a variety of market conditions as it has the flexibility not only to gain exposure to the most attractive assets but also to take short positions (using derivatives) in assets that the fund manager considers unattractive. The fund managers believe that this strategy has a greater chance of delivering strong returns than a traditional long-only portfolio.
• The fund has an innovative investment approach that combines macroeconomic research and in-depth valuation analysis with elements of behavioural finance. This approach has been developed and operated by the M&G Multi Asset team for over 20 years.

Valuation framework: Sample of assets, showing real yield against neutrality

The fund managers evaluate the macroeconomic environment and look for instances where investor emotion has moved asset classes away from what the managers assess to be their long-term ‘fair value’ or ‘neutrality’.

Source: Refinitiv Datastream, 9 July 2022, for illustrative purposes only. The green columns show the expected return or real yield from each type of asset. The neutrality band is the level where the fund managers perceive the real yield to be a ‘fair’ reflection of the assets’ underlying value. *Real yield for equity is defined as an inverted p/e ratio, using forward consensus data. The above data is a hypothetical representation for illustrative purposes only and is not representative of any M&G product or strategy. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those shown. This chart represents just the starting point for the team’s investment process and behavioural finance insights are crucial to its interpretation. M&G does not have house views.

Fund Facts

31 July 2022	US$2,358.04 million
Fund launch date	16 January 2018
Benchmark*	None
Sector	Morningstar USD Flexible Allocation sector

*The fund is actively managed and has no benchmark. Investors can assess the performance of the fund by its objective to provide a combination of capital growth and income of 5-10% on average per year over any three-year period.

This is a marketing communication. Please refer to the prospectus and to the KIID before making any final investment decision.

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. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested.

The fund may use derivatives to profit from an expected rise or fall in the value of an asset. Should the asset’s value vary in an unexpected way, the fund will incur a loss. The fund’s use of derivatives may be extensive and exceed the value of its assets (leverage). This has the effect of magnifying the size of losses and gains, resulting in greater fluctuations in the value of the fund.

The fund is exposed to different currencies. Derivatives are used to minimise, but may not always eliminate, the impact of currency movements in currency exchange rates.

Further details of the risks that apply to the fund can be found in the fund's Prospectus.

The fund allows for the extensive use of derivatives.

Investing in this fund means acquiring units or shares in a fund, and not in a given underlying asset such as a building or shares of a company, as these are only the underlying assets owned by the fund.