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Q1 2024 Risk Managed Active and Risk Managed Passive Funds update from the M&G Treasury & Investment Office (T&IO)

6 min read 25 Apr 24

An update from the M&G Treasury and Investment Office reviewing markets and key updates to the Waystone Risk Managed Active and Risk Managed Passive fund ranges over quarter 1.

Summary

  • Market synopsis of recent months
  • Portfolio performance overview
  • Key changes to asset allocations and current holdings

In this article

Market overview

Quarter 1 saw growing evidence of a softening in inflation across major economies, although inflation in many countries was still above central bank’s target levels. Uncertainty remains regarding the forward looking pathway for monetary policy and when central banks will begin to unwind interest rates. A growing consensus among investors that the cycle of interest rate hikes is at an end after the European Central Bank sent a strong signal that it would consider cutting rates at its next meeting in June. The US economy has evidenced the possibility that rates may need to stay higher for longer.

The rally in bond markets at the end of last year faded in the first quarter as investors pushed back their timing of potential rate cuts. Bond yields rose in January and February before recovering somewhat in March when the Fed confirmed it expected to cut rate three times this year. The current spread divergence seen between government bonds underscores the importance of having global diversification across different bond markets as monetary policy potentially diverges between different regions.

Most equity markets started the year in positive territory with subsiding inflationary pressures, robust economic data and the prospect of oncoming rate cuts. The US stock market registered its best first quarter in five years, with the S&P advancing 10.6% driven partly by the continued appetite for artificial intelligence. UK equities increased, led by returns from large-cap stocks. European equities rose for the second consecutive quarter following reasonable corporate earnings and declining inflation to 2.4% in March. Emerging market equities registered more modest returns, held back by weakness in China and Latin America. 

Brent crude oil was up 12.5% over the first quarter as ongoing production cuts and geopolitical tensions continue to impact markets, while the dollar strengthened against major currencies including sterling and the euro.

Portfolio performance overview

We’ve seen positive performance for the Active and Passive fund ranges year to date with returns ranging from +0.20% for Active 2 to +1.48% for Active 5 and from +0.69% for Passive 1 to +2.35% for Passive 5.

*P Acc share class with data sourced from FE analytics as at 31 March 2024.

Underlying fund changes

US BlackRock RAFI Equity Fund – We have decided to shift some exposure within US equity to a RAFI Fundamental Weighted Index. This portion of the US equity allocation will help maintain a well-diversified exposure to US equities while moving away from the market-cap weighted S&P 500 where the largest 7 constituents of the S&P 500 constitute around 30% of the market value for the entire index.

M&G European Property Fund – During the period we meaningfully increased our physical exposure via the M&G European Property fund, a great step in core physical additions to the range. This was possible due to being drawn down on commitments made in late 2022 and early 2023 and taking a secondary market opportunity to add further exposure.

Asset allocation positions

The below tables show the breakdown of the positions across the Risk Managed Active and Passive fund ranges as at 31 March 2024.

Asset Class

RMA1

RMA2

RMA3

RMA4

RMA5

Total Equity

14.27%

25.59%

37.82%

48.67%

59.80%

UK Equity

3.84%

7.46%

11.36%

14.78%

18.37%

Europe Equity

1.81%

3.20%

4.71%

6.08%

7.52%

Asia Equity

1.96%

3.68%

5.56%

7.20%

8.92%
North America Equity 2.41% 4.06% 5.77% 7.48% 9.04%
Canada Equity 0.22% 0.43% 0.64% 0.73% 0.96%
Japan Equity 1.24% 2.14% 3.09% 3.93% 4.76%
China Equity 1.07% 1.58% 2.23% 2.79% 3.35%
India Equity 0.30% 0.54% 0.80% 1.03% 1.23%
Global Emerging Equity 0.73% 1.20% 1.73% 2.19% 2.62%
South Africa Equity 0.69% 1.30% 1.93% 2.46% 3.03%

Total Alternatives

2.71%

2.36%

2.65%

3.25%

3.79%

Infrastructure

2.13%

2.36%

2.65%

3.25%

3.79%
Diversifying Strategies 0.27% 0.37% 0.50% 0.55% 0.61%
Private Equity 0.31% 0.44% 0.58% 0.63% 0.71%

Total Fixed Income

74.57%

62.44%

49.25%

37.16%

24.24%

 UK Investment Grade

25.97%

20.29% 

14.48% 

10.29% 

6.60%

 US Investment Grade

15.00%

11.66%

8.39%

6.02%

2.93%
Europe Investment Grade 5.13% 3.81% 2.55% 1.49% 0.48%

UK Government

3.47%

2.99%

2.45%

1.91%

1.33%

US Government

3.04%

3.02%

2.92%

2.58%

2.78%
Asia Fixed Income 12.65% 11.32% 9.54% 7.07% 4.43%
Convertible Bonds 1.50% 1.24% 0.97% 0.72% 0.44%
Emerging Market Debt 4.48% 4.00% 3.80% 3.40% 2.61%
Global High Yield 3.33% 4.11% 4.15% 3.68% 2.64%
Total Property  5.15% 6.66% 7.59% 8.68% 10.16%
UK  2.72% 3.58%  4.12%  4.66%  5.45% 
Europe  1.13% 1.43%  1.60%  1.89%  2.22% 
Asia  1.30%  1.65%  1.87%  2.13%  2.49% 
Total Cash  2.29% 2.14% 1.59% 1.07% 0.69%

Source: T&IO as at 31.03.2024

Asset Class

RMP1

RMP2

RMP3

RMP4

RMP5

Total Equity

19.51%

29.68%

40.85%

52.21%

64.10%

UK Equity

5.53%

8.76%

12.27%

16.08%

19.98%

Europe Equity

2.57%

3.96%

5.52%

7.07%

8.80%

Asia Equity

2.97%

4.57%

6.40%

8.34%

10.35%
North America Equity 3.21% 4.63% 6.16% 7.73% 9.31%
Canada Equity 0.32% 0.46% 0.65% 0.83% 0.98%
Japan Equity 1.62% 2.43% 3.33% 4.17% 5.01%
China Equity 0.91% 1.24% 1.56% 1.88% 2.23%
India Equity 0.42% 0.58% 0.80% 1.03% 1.23%
Global Emerging Equity 1.34% 2.05% 2.81% 3.51% 4.20%
South Africa Equity 0.62% 1.00% 1.35% 1.57% 2.01%

Total Alternatives

1.27%

2.50%

3.21%

3.57%

3.94%

Infrastructure

1.27%

1.70%

2.22%

2.69%

3.23%

Total Fixed Income

75.00%

64.45%

53.04%

41.17%

28.98%

 UK Investment Grade

30.67%

25.71% 

20.27% 

15.25%

10.16%

 US Investment Grade

17.36%

15.07%

12.40%

9.61%

6.74%
Europe Investment Grade 9.41% 7.75% 5.93% 4.17% 2.51%

UK Government

3.41%

2.98%

2.51%

2.11%

1.59%

US Government

3.13%

2.61%

2.47%

2.01%

1.66%
Asia Fixed Income 4.58% 3.88% 3.14% 2.37% 1.67%
Emerging Market Debt 3.84% 3.49% 3.32% 2.96% 2.44%
Global High Yield 3.33% 4.11% 4.15% 3.68% 2.64%
Total Property  1.75% 2.50% 3.21% 3.57% 3.94%
UK  0.88% 1.28% 1.65% 1.86% 2.07%
Europe  0.87% 1.22% 1.56% 1.71% 1.87%
Total Cash  2.45% 1.67% 0.66% 0.36% -0.24%*

                                                                                         Source: T&IO as at 31.03.2024 

*The negative cash balance at month end was temporary and due to pre-funding of the European Property Fund draw down. The pre-funding was covered as part of BAU and at no cost to the fund.

Outlook

It is likely that we are entering a period of shorter economic cycles. In an ever changing world it is important to remain proactive and stay on top of asset allocation and portfolio diversification.

The tightening cycle moves over the past two years have reset the valuation outlook, making core fixed income more attractive and a useful addition to portfolios if recessionary conditions do take hold. Meanwhile the varying experiences across different regions highlights the diversification benefit more than ever of maintaining good breath of coverage across global capital markets. 

We continue to take a balanced view, monitoring the current volatility seen in markets and identifying potential risks and opportunities surrounding stimulus measures and investor sentiment, ensuring these funds are well placed to deliver for clients over the medium to long term.

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.

M&G Investment Management are the investment managers for the WS Prudential Risk Managed Active and Risk Managed Passive Funds. They make the relevant adjustments to the portfolios based on T&IO recommendations. 

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