Asset Class |
RMA1 |
RMA2 |
RMA3 |
RMA4 |
RMA5 |
|---|---|---|---|---|---|
Equity |
-1.50% |
-2.00% |
-2.50% |
-3.00% |
-3.50% |
UK |
-0.75% |
-1.00% |
-1.25% |
-1.50% |
-1.75% |
Europe |
-0.30% |
-0.40% |
-0.50% |
-0.60% |
-0.70% |
Asia |
-0.45% |
-0.60% |
-0.75% |
-0.90% |
-1.05% |
Alternatives |
+0.25% |
+0.25% |
+0.25% |
+0.25% |
+0.25% |
Infrastructure |
+0.25% |
+0.25% |
+0.25% |
+0.25% |
+0.25% |
Fixed Income |
+1.25% |
+1.75% |
+2.25% |
+2.75% |
+3.25% |
UK Investment Grade |
- |
- |
- |
+0.50% |
+0.75% |
US Investment Grade |
+0.25% |
+0.75% |
+1.25% |
+1.25% |
+1.50% |
UK Government |
+0.50% |
+0.50% |
+0.50% |
+0.50% |
+0.50% |
US Government |
+0.50% |
+0.50% |
+0.50% |
+0.50% |
+0.50% |
Risk Managed Range From Prudential
Q4 2023 Risk Managed Active and Risk Managed Passive Funds update
Last Updated: 8 Jan 24 6 min read
An update from the M&G Treasury and Investment Office reviewing markets and recent Strategic Asset Allocation (SAA) changes applied to the Waystone Risk Managed Active and Risk Managed Passive fund ranges.
Summary
- Market synopsis of recent months
- A portfolio performance overview
- Key changes implemented for both fund ranges as part of the recent SAA review
Market overview
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.
After two years of declines, 2023 proved to be another tough year for bond investors. A high degree of volatility across positive and negative territory following the tightened monetary policy backdrop from central banks has contributed to the continuation. The global bond index ended 2023 up for the first time in three years after a rebound in November and December. We believe that the change in valuations that has taken place has created an opportunity for investors in government bonds.
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 as we start 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.
Portfolio performance overview
Despite the economic backdrop last year we’ve seen positive performance for the Active and Passive fund ranges year to date with returns ranging from +5.89% for Active 1 to +5.01% for Active 5 and from +6.32% for Passive 1 to +6.75% for Passive 5.
Data sourced from FE analytics as at 29 December 2023.
Underlying fund changes
In the final quarter of 2023, we introduced two new active large cap US Equity managers, MFS and William Blair, to sit alongside our existing exposure to Manulife. Both managers run relatively concentrated, high conviction portfolios with MFS biased to ‘Value’ and William Blair biased to ‘Growth’ in order to provide an overall ‘core’ style balance.
The fund ranges also now invest into the M&G (Lux) Sterling Liquidity Fund for their cash allocations. This is a low volatility Money Market Fund (MMF) with 3 key objectives: capital preservation, same day liquidity and a gross rate of return in line with money market rates. The fund launched in December 2021 and has outperformed its benchmark SONIA (Sterling Overnight Index Average) since inception.
Strategic asset allocation – portfolio changes
The UK, European and US Central Banks raised interest rates throughout the year in a bid to combat inflation, leading to developed market government bond yields reaching levels not seen since 2007.
As a result we reviewed the SAA and made the decision to further increase the allocation to Fixed Income across both ranges. The increases were to US Investment Grade Bonds and UK and US Government Bonds.*
This increase was funded from a reduction in the UK, Europe and Asia Equity allocations.
We have also increased our Infrastructure exposure providing further diversification, real yields and an element of inflation linked returns.
*Risk Managed Active 4 and 5 also had increases to UK Investment Grade bonds.
The below tables show the breakdown of the changes to the SAA benchmarks.
Asset Class |
RMP1 |
RMP2 |
RMP3 |
RMP4 |
RMP5 |
|---|---|---|---|---|---|
Equity |
-1.50% |
-2.00% |
-2.50% |
-2.50% |
-2.50% |
UK |
-0.75% |
-1.00% |
-1.25% |
-1.25% |
-1.25% |
Europe |
-0.30% |
-0.40% |
-0.50% |
-0.50% |
-0.50% |
Asia |
-0.45% |
-0.60% |
-0.75% |
-0.75% |
-0.75% |
Alternatives |
+0.20% |
+0.20% |
+0.20% |
+0.20% |
+0.20% |
Infrastructure |
+0.20% |
+0.20% |
+0.20% |
+0.20% |
+0.20% |
Fixed Income |
+1.30% |
+1.80% |
+2.30% |
+2.30% |
+2.30% |
US Investment Grade |
+0.30% |
+0.80% |
+1.30% |
+1.30% |
+1.30% |
UK Government |
+0.50% |
+0.50% |
+0.50% |
+0.50% |
+0.50% |
US Government |
+0.50% |
+0.50% |
+0.50% |
+0.50% |
+0.50% |
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.