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Q3 PruFund Planet update from the M&G Treasury & Investment Office (T&IO)

3 min read 3 Nov 22

  • Inflation remains at or near multi decade highs
  • Several of the main central banks forced into much higher interest rate rises than previously forecast
  • Extremely challenging for most asset classes
  • Downwards UPAs for Planet but relative performance in 2022 still solid
  • Long term positioning of underlying portfolios reviewed over the summer; several adjustments made
  • Morgan Stanley US Prime Property and Columbia Threadneedle UK Social Bond funds added to underlying portfolios.

Notable interest rate rises by the world’s leading central banks and growing concerns about the health of the global economy hurt both equity and bond markets in the third quarter. Despite posting strong returns in July, global equity markets sold off in August and September (in US dollar terms), leaving investors nursing deeply negative returns on a year-to-date basis.

High recessionary risks were reflected in foreign exchange markets where several of the world’s major currencies sold off significantly against the US dollar. Many bond markets also endured a highly volatile quarter as government bond yields (which move inversely to bond prices) increased in response to the moves from the central banks. US 10-year government bond yields hit their highest level since 2008 towards the end of the quarter. A dramatic fall in UK government bond prices, meanwhile, forced the Bank of England to carry out temporary purchases of long-dated gilts.

Against a very challenging backdrop, there were further downward Unit Price Adjustments across the range. Whilst disappointing, in the context of broader markets and many other multi asset solutions, relative performance continues to be very robust.

We did also see several underlying funds including M&G Positive Impact, Pictect Global Environmental Opportunities and Wellington Climate Strategy produce positive absolute and relative performance as sentiment improved and quality growth has been rewarded in the market. Our thematic funds continue to focus on quality companies underpinned by secular long-term trends which we believe will be successful over time. 

The T&IO Long Term Investment Strategy team completed the strategic asset allocation review in the quarter and many of the proposed changes have already been implemented by the portfolio managers. Many of the changes follow the same pattern as the main PruFund range, as you would expect.

The table below provides the high-level benchmarks for each of the five PruFund Planet funds   

% 1 2 3 4 5
Equity 15.0 26.3 37.5 49.3 62.6
Property 9.3 11.0 12.5 13.3 14.3
Alternatives 11.0 11.3 11.5 11.8 11.8
TAA Mandate 2.0 2.3 2.5 3.0 3.3
FI 58.5 46.0 33.5 21.0 7.2
           
Cash 4.3 3.3 2.5 1.8 1.0

The key changes are;

  • Equity exposure reduced. The higher relative exposure to US equities, when compared to other PruFunds, has been maintained
  • Property exposure rebalanced and increased with the addition of the Morgan Stanley US Prime Property Fund to provide more diversification
  • Alternatives, that now include Private High Yield, adjusted with Hedge Fund exposure reduced and Private Equity and Infrastructure increased
  • Fixed income allocations continue to evolve such that Asia and Emerging Market Debt have been increased. The Columbia Threadneedle UK Social Bond Fund also added to portfolios to provide to add a different return profile and additional lever to meet the regional strategic asset allocation. 

Summary

It has been a very challenging year so far, for all multi asset teams.

It feels at times as though sell offs have been indiscriminate as investors become increasingly worried about likely recessions driven by all the factors that have been discussed for months.

We shouldn’t forget that many of the underlying funds within PruFund Planet are not only looking to invest in companies that can help solve some the worlds environmental and societal challenges but also those companies that will become tomorrow’s winners.

It is so important that we, and policyholders, continue take a long-term view. Current markets are hugely uncertain and there could be more volatility to come but we should always remember that conditions like this will often create attractive long term investment opportunities for globally diversified funds such as the PruFund Planet range.

This content has been prepared by M&G Treasury and Investment Office (T&IO) and is prepared for information purposes only and does not contain or constitute investment advice. Information provided herein has been obtained from sources that T&IO believes to be reliable and accurate at the time of issue but no representation or warranty is made as to its fairness, accuracy, or completeness. The views expressed herein are subject to change without notice. Neither T&IO, nor any of its associates, nor any director, or employee accepts any liability for any loss arising directly or indirectly from any use of this document. The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back less than the original amount invested and past performance information is not a guide to future performance.

‘M&G Treasury & Investment Office (T&IO)’ includes the team formerly known as Prudential Portfolio Management Group (PPMG). Prudential Portfolio Management Group Limited, is registered in England and Wales, registered number 2448335.