For UK financial advisers only, not approved for use by retail customers. Click here for the customer website.
PruAdviser is now part of M&G plc, so we’ve been upgrading our website. You’ll no longer see pruadviser.co.uk in your browser address bar, or indeed if you have used a search engine (eg google), you’ll now see mandg.com/pru/adviser.
You'll still see reference to “pruadviser” when you login to our online services. Please read through this page if you are having issues logging in to our online services.
PruAdviser online services will be unavailable from 18:00 on Saturday 13 August until 12:30 on Sunday 14 August for website maintenance. We apologise for any inconvenience caused.
Funds
5 min read 4 Apr 22
Global inflationary fears and Russia’s invasion of Ukraine were the two themes that dominated global financial markets during the quarter.
Rising inflation expectations weighed heavily on both bonds and shares in most major markets, as investors fretted over the impact of higher prices on consumers and businesses and anticipated a much faster pace of interest rate rises from the world’s major central banks.
The conflict between Russia and Ukraine acted as another catalyst for commodity price rises. The added geopolitical uncertainty weighed heavily on many emerging markets, particularly those closest to the conflict zone. However, some markets further afield, such as in Latin America, and notable oil- producing nations performed well. Assets that are traditionally seen as safer bets, such as the US dollar and gold also benefitted.
The yields on government bonds in the UK, US and Europe rose sharply throughout the quarter (prompting notable losses for many bond investors).
The key drivers of returns for the underlying PruFund Growth portfolios in the first part of 2022* were property, alternatives, African equities and private credit as shown in the bar chart below.
1. Middle East & Africa Equity
2. Africa Bonds
3. Asia Property
4. Infrastructure
5. UK Property
6. TAA Mandate
7. Private High Yield
8. European Property
9. Hedge Fund
10. Private Equity
11. Private Credit
12. Asia ex Japan Equity
13. Cash
14. North America Property
15. Japan Equity
16. Asia Bonds
17. US Bonds
18. Europe incl. UK Bonds
19. India Equity
20. Global High Yield
21. UK Equity
22. Global Emerging Equity
23. EM Debt
24. China Equity
25. Europe ex. UK Equity
26. Convertible Bonds
27. North America Equity
Asset allocations are regularly reviewed and may vary from time to time, but will always be consistent with the fund objective.
*Performance data source – M&G Performance Reporting team. Data to end Feb because of lags with real estate and private asset numbers
Our key diversifying assets have remained sturdy so far in what has been a tough year for most major equity and bond markets. As at the time of writing March was certainly better for equities with the FTSE 100 tipping into positive territory for 2022.
Clearly, 2022 has also been challenging for PruFund Cautious portfolios that hold more fixed income and less property and alternatives than Growth.
Equities
Within the equity portfolios we decided to reduce some risk. Given that funds performed well in 2021 and we see further uncertainty around the direction of the war and what the outcomes may be, a small reduction in equities to re-balance the portfolios has been applied.
This will also provide additional liquidity. We may also take additional steps to reduce or reapply risk depending on how the situation evolves.
Property
Another busy period for teams across M&G Real Estate has seen the team who run the M&G Asian Property Fund substantially increase its exposure to Japan’s residential for rent sector through the recent purchase of 30 multi-family housing assets in the gateway cities of Tokyo, Osaka and Nagoya. M&G was an early investor in this market in 2014 and this has been rewarded with consistent returns from an asset class that remained resilient throughout the pandemic, underpinned by continued urbanisation.
The development in Haymarket, Edinburgh, which has been highlighted previously will create a new destination for workers and the local community, with a focus delivering high quality real estate that meets modern occupier needs. Pleasingly, the 390,000 sq. ft of Grade A office space is now fully pre-let.
Finally, the team announced that the Manchester Arndale Centre will become home to the UK’s first Urban Playground attraction, offering visitors a chance to beat ITV game show The Cube as part of a dynamic new leisure venue. We believe this is a good example of active asset management, showing how the use of a retail asset can evolve.
Note - both Haymarket and the Arndale Centre are effectively in PruFund Growth.
M&G Catalyst
The team acquired a majority stake in sustainable housebuilder Greencore Construction (Greencore). The investment will help Greencore to significantly expand its capacity and increase its impact across the UK.
M&G also plans to invest up to half a billion pounds over the next three to five years in sustainable new developments of private and affordable housing, in partnership with Greencore. The co-development will be led by M&G’s real estate investment team, on behalf of investors in its residential property and shared ownership strategies.
Greencore has developed an innovative modern method of construction which uses a closed panel timber frame, manufactured off-site and insulated with natural materials such as hemp, lime and wood-fibre. This allows it to build high quality, energy efficient homes which lock up more carbon than is emitted both during construction and also over the lifetime of the home.
Summary
It would be nice to be able to paint a picture of a more positive outlook for 2022 but the likelihood is that the conflict in Ukraine will rumble on for some time and whilst equity markets have recovered in recent weeks any signs of escalation could well see fragile sentiment shaken again.
Central banks have been keen to provide clear forward guidance, in order to navigate a path out of the uncertainty facing markets, while governments face a challenging balancing act of reducing huge budget deficits in the wake of the pandemic support packages, while providing support to those most in need from the increasing cost of living.
The market continues to grapple with the additional pain the Russia-Ukraine conflict will have on inflation and supply chains, and whether it is enough to slow economic growth sufficiently to further impact financial asset valuations.
To finish on a more positive note, we do believe that the extremely broad diversification of PruFund portfolios should continue to help shelter investors from some of the negativity and current markets may also prove to be fertile ground for active managers, across all asset classes, with the potential to invest at attractive valuations in many cases.
PruFund Growth - Main Mandates/Funds
PruFund Cautious - Main Mandates/Funds
Source of underlying holdings data: M&G Treasury and Investment Office as at 1 January 2022.
© Prudential 2022
"Prudential" is a trading name of Prudential Distribution Limited. Prudential Distribution Limited is registered in Scotland. Registered Office at Craigforth, Stirling FK9 4UE. Registered number SC212640. Authorised and regulated by the Financial Conduct Authority. Prudential Distribution Limited is part of the same corporate group as the Prudential Assurance Company Limited. The Prudential Assurance Company Limited and Prudential Distribution Limited are direct/indirect subsidiaries of M&G plc which is a holding company registered in England and Wales with registered number 11444019 and registered office at 10 Fenchurch Avenue, London EC3M 5AG, some of whose subsidiaries are authorised and regulated, as applicable, by the Prudential Regulation Authority and the Financial Conduct Authority. These companies are not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America or Prudential plc, an international group incorporated in the United Kingdom.