LF Prudential Risk Managed Active & LF Prudential Risk Managed Passive - Investment Update

• Markets and sentiment dominated by events in Ukraine

• More concern and uncertainty in an already inflationary environment

• T&IO have been monitoring markets very closely

• Diversifying assets like property and alternatives favouring Active portfolios

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 benefited.

The yields on government bonds in the UK, US and Europe rose sharply throughout the quarter (prompting notable losses for many bond investors).

It has been a tough quarter, for all multi asset teams as there have been very few hiding places in global markets, although overall returns have recovered in recent weeks albeit they are still negative year to date.

Total returns from equity portfolios have been negative. In relative terms, regions with higher commodity exposure, UK and South Africa fared better. There have been some pockets of good news as M&G (Lux) Europe ex UK Fund (+1.9%), M&G North American Value Fund (+6.1%) generated positive returns in the Active portfolios. 

Chinese equities continue to struggle with the M&G ACS China Value Partners down -15.4%.

It was another solid quarter for listed alternatives (+1.3%) and property (+1.5%). This will have favoured the Active portfolios, that hold property and have slightly higher exposure to alternatives. 

It was a particularly tough quarter for some of our fixed income holdings as central banks started raising rates and events in Ukraine piled more pressure on.

The only holding to produce a positive return was the M&G Credit Income Investment Trust (+1.7%). Although this is a relatively small part of the overall portfolios.

All other holdings were well into negative territory. For example, one of the larger holdings, the M&G Strategic Corporate Bond Fund returned -5.3% although this was ahead of the iShares Corporate Bond Index (held in the Passives) at -6.4%.