- Overview of performance
- Key changes implemented across the range as part of the recent SAA review
Article
Q4 2023 PruFund Planet update from the M&G Treasury and Investment Office (T&IO)
5 min read 9 Jan 24
In this article
Summary
Market overview
Inflation
As 2023 came to an end, there was growing evidence of a softening in inflation, although there remained some uncertainty regarding the forward looking pathway for monetary policy. The recent pauses from Central Banks has led to a growing consensus among investors that the cycle of interest rate hikes is at an end, even though inflation remains above target levels. This view reflects the fact that, despite one of the most aggressive and rapid hiking cycles in history, the global economy has held up well so far.
Bonds
After two years of declines, 2023 proved to be another tough year for bond investors with a high degree of volatility veering across positive and negative territory following the tightened monetary policy backdrop from central banks. The global bond index ended 2023 up for the first time in three years after a rebound in November in December. We believe that the change in valuations that has taken place has created an opportunity for better returns for investors in government bonds.
Equities
Most equity markets ended the year in positive territory on the prospect of ‘peak interest rates’. Current valuations are viewed as neither cheap nor expensive heading into 2024 with a focus on higher quality stocks. The US continues to trade at a premium to others primarily driven by the gains from mega cap companies this year.
Performance overview
We recognise that the performance of PruFund Planet relative to PruFund has continued to be challenging since launch in 2021. Whilst we are constantly monitoring this, we are of the opinion that it is unsurprising, and attribute this to several factors:
2022 – outperformance of sin sectors
As the global economy reopened after the COVID-19 pandemic, elevated oil prices and supply shortages following Russia’s invasion of Ukraine led to the outperformance of energy and aerospace and defence sectors. Tobacco also performed particularly well which provided further headwinds to sustainable strategies. As a result of exclusion policies, PruFund Planet funds are underweight to these sectors and so did not benefit.
That being said, in 2023 we have seen this headwind reverse and become a tailwind for a number of PruFund Planet’s equity exposures as sin sectors have struggled to keep pace with broader global equity markets.
2023 – impact of large cap technology rally
The technology rally and outperformance of the “magnificent seven” US mega cap stocks in 2023 has added further headwinds to performance. Whilst the US does make up a large portion of the opportunity set, this small number of high performing technology names are not held broadly across Planet’s active equity portfolios due to their primary focus on investing in solution providers and sustainability leaders. We don't expect the outperformance of large-cap technology to be a long-term trend.
Private Assets
As public assets saw a significant sell-off in the first half of 2022, PruFund Planet’s private asset portfolios were affected as we had some exposure to listed vehicles.
However since physical Property performance across most regions has performed well relative to counterparts. We remain confident that the allocation to high quality physical assets will be a positive differentiator. Private assets have been a positive contributor to the returns of PruFund over the long term.
Underlying fund changes
We continually look for ways we can enhance the PruFund Planet proposition across all asset classes, and some recent changes include:
We’ve transitioned the management of the Asia Sustainable Bond allocation to Manulife and have conviction in this team to deliver long-term performance. At the recent Strategic Asset Allocation (SAA) review UK Gilts was also added as an additional target exposure through existing funds with ESG integration and in line with changes across the broader fund range.
A new addition to the funds private assets exposure in the last year has been the allocation to two sustainable food strategies in Asia and Latin America run by responsAbility. These funds look to develop and fund sustainable and fair agriculture practices through investment in organic and fair trade food production and infrastructure. Sustainable food is something we’ve sought to gain further exposure to given it’s inflationary hedging properties.
Strategic asset allocation – portfolio changes
The UK, European and US Central Bank raised interest rates throughout the year in order to combat inflation, leading to developed market government bonds yields reaching levels not seen since 2007.
As a result we have reviewed the SAA and made the decision to further increase the allocation to Fixed Income. The increase was funded from a reduction in the UK, Europe and Asia Equity allocations.
We have also increased our alternatives and real assets exposure providing further diversification, real yields and an element of inflation linked returns.
The below tables show the breakdown of the changes to the SAA benchmarks.
|
Planet 1 |
Planet 2 |
Planet 3 |
Planet 4 |
Planet 5 |
|---|---|---|---|---|---|
Equity |
-1.50% |
-2.00% |
-2.50% |
-3.50% |
-3.55% |
Property |
- |
-0.25% |
-0.50% |
-0.75% |
-1.00% |
Alternatives |
+1.50% |
+1.25% |
+1.00% |
+0.75% |
+0.50% |
Fixed Income |
- |
+1.00% |
+2.00% |
+3.50% |
+4.05% |
Outlook
Whilst we are mindful that PruFund Planet was launched into a challenging market, this has not impacted our long-term view on the ability of these strategies to outperform and the performance of the fund remains robust compared to peers since inception. T&IO continue to enhance the range to ensure that it provides positive performance and sustainable outcomes for clients.
We understand that there may be differences in performance of PruFund and PruFund Planet but we would not expect these to be material over the longer-term.
Underlying PruFund Planet Funds |
Planet 1 |
Planet 2 |
Planet 3 |
Planet 4 |
Planet 5 |
|---|---|---|---|---|---|
| M&G (ACS) BlackRock UK Equity Fund | 3.42% | 6.16% | 9.25% | 11.85% | 15.74% |
| M&G (Lux) BlackRock Europe ex UK Equity Fund | 0.32% | 0.34% | 0.57% | 0.59% | 1.15% |
| M&G (ACS) BlackRock US Equity Fund | 0.13% | 0.11% | 0.16% | 0.14% | 0.30% |
| M&G Funds (1) BlackRock Asia Pacific (ex Japan) Equity Fund | 2.12% | 4.19% | 6.06% | 7.59% | 10.24% |
| M&G Funds (1) BlackRock Emerging Market Equity Fund | 1.02% | 1.90% | 2.72% | 3.47% | 4.90% |
| M&G (ACS) BlackRock Japan Equity Fund | 0.62% | 1.16% | 1.68% | 2.02% | 2.91% |
Total BlackRock ESG Regional Equity |
7.64% |
13.86% |
20.45% |
25.65% |
35.24% |
| M&G Better Health Solutions Fund | 0.49% | 0.94% | 1.42% | 1.89% | 3.16% |
| M&G Positive Impact Fund | 2.10% | 4.36% | 6.31% | 8.33% | 10.15% |
| Pictet Global Environmental Opportunities Fund | 0.53% | 0.64% | 0.94% | 1.59% | 1.62% |
| RobecoSAM Gender Equality Impact Fund | 0.54% | 1.04% | 1.49% | 1.94% | 2.87% |
| RobecoSAM Sustainable Water Equities | 0.43% | 0.72% | 1.17% | 1.43% | 1.64% |
| Wellington Climate Strategies Fund | 0.42% | 0.78% | 1.10% | 1.49% | 1.88% |
Total Targeted Thematic Equity |
4.50% |
8.47% |
12.44% |
16.67% |
21.33% |
| iShares UK Property UCITs ETF | 1.60% | 0.00% | 0.00% | 0.00% | 0.00% |
| M&G Residential Property Fund | 0.96% | 1.33% | 1.38% | 1.70% | 3.47% |
| M&G Prudential Real Estate Limited Partnership (PRELP) | 3.92% | 5.64% | 6.63% | 8.32% | 5.97% |
| M&G European Property Fund | 0.93% | 1.49% | 1.56% | 2.07% | 2.48% |
| Morgan Stanley Prime Property Fund | 0.65% | 0.91% | 1.01% | 1.13% | 1.11% |
| M&G Asian Property Fund | 1.06% | 1.30% | 1.43% | 1.66% | 1.49% |
Total Property |
9.12% |
10.67% |
12.01% |
14.87% |
14.52% |
| M&G Real Assets Impact Fund | 2.71% | 3.11% | 3.25% | 3.57% | 3.15% |
| Ecofin US Renewables Infrastructure Trust | 0.22% | 0.32% | 0.39% | 0.46% | 0.15% |
| M&G Real Impact Fund | 3.68% | 3.23% | 3.29% | 2.79% | 4.49% |
| responsAbility Sustainable Food LATAM I | 0.39% | 0.47% | 0.45% | 0.51% | 0.32% |
| responsAbility Sustainable Food Asia II | 0.39% | 0.48% | 0.46% | 0.51% | 0.33% |
| M&G Catalyst Capital Fund | 3.28% | 3.77% | 3.84% | 4.19% | 3.43% |
Total Alternatives |
10.68% |
11.37% |
11.69% |
12.03% |
11.86% |
| Tactical Asset Allocation - M&G Sustainable Multi Asset Fund | 1.77% | 2.06% | 2.23% | 2.73% | 2.96% |
| iShares $ Corporate Bond ESG Fund | 6.04% | 4.09% | 3.15% | 1.77% | 1.11% |
| M&G Sustainable Loan Fund | 1.50% | 1.57% | 1.23% | 0.99% | 0.30% |
| Manulife Sustainable Asian Bond Fund | 9.16% | 7.50% | 5.86% | 3.87% | 2.19% |
| M&G (Lux) Sustainable Emerging Markets Corporate Bond Fund | 5.32% | 4.47% | 3.58% | 2.40% | 1.39% |
| M&G Impact Financing Fund | 3.29% | 3.39% | 2.69% | 2.07% | 0.68% |
| Catalyst Credit Fund | 0.42% | 0.45% | 0.37% | 0.27% | 0.14% |
| M&G (Lux) Sustainable Global High Yield Bond Fund | 3.37% | 3.26% | 2.81% | 2.06% | 1.30% |
| Wellington Impact Bond Fund | 19.52% | 16.26% | 12.01% | 8.54% | 3.82% |
Total Fixed Income |
61.59% |
50.68% |
38.72% |
26.48% |
13.40% |
| Cash | 4.70% | 2.88% | 2.47% | 1.57% | 0.66% |
| 100.00% | 100.00% | 100.00% | 100.00% | 99.98% |
This content has been prepared by M&G Treasury and Investment Office (T&IO) 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.
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