| Security Description | Active 1 | Active 2 | Active 3 | Active 4 | Active 5 |
|---|---|---|---|---|---|
US Equity |
2.31 |
3.91 |
5.77 |
7.17 |
8.83 |
M&G (ACS) BlacRock US Equity Fund* |
0.16 | 0.23 | 0.44 | 0.57 | 0.73 |
M&G (ACS) BlacRock RAFI Equity Fund* |
0.74 | 1.49 | 2.33 | 2.87 | 3.57 |
M&G (ACS) Earnest Partners US Small Cap Value* |
0.11 | 0.24 | 0.29 | 0.39 | 0.46 |
M&G (ACS) Granahan US Small Cap Growth Equity Fund* |
0.13 | 0.20 | 0.24 | 0.33 | 0.48 |
M&G (ACS) Manulife US Equity Fund* |
0.16 | 0.34 | 0.47 | 0.59 | 0.73 |
M&G (ACS) MFS US Large Cap Equity Fund* |
0.26 | 0.46 | 0.68 | 0.89 | 1.07 |
M&G (ACS) Willliam Blair US Large Cap Equity Fund* |
0.30 | 0.44 | 0.69 | 0.92 | 1.14 |
E-Mini S&P 500 |
0.44 | 0.51 | 0.63 | 0.61 | 0.65 |
Risk Managed Range From Prudential
2024 Risk Managed Active and Risk Managed Passive Funds Strategic Asset Allocation Review
Last Updated: 29 Aug 24 10 min read
Background
In 2023, the Waystone Risk Managed Active Fund Range ‘Active fund range’ and Waystone Risk Managed Passive Fund range ‘Passive fund range’ had two strategic asset allocation (SAA) reviews that provided a meaningful shift out of equities into fixed income to take advantage of the historically high starting yields and reduce historical underweights to fixed income.
Since then:
- Inflation has abated, but was more stubborn compared to market expectations
- Bond yields, having initially priced in aggressive monetary easing and therefore declined, have since returned to broadly the same levels as those in November 2023, but remain volatile
- Credit spreads have tightened further
- Equity markets on average have climbed higher with gains driven by diverse sources
Contents
2024 SAA Review
Both the Active range and Passive range had a SAA review as at 1 July 2024.
For the Active range, the 2024 SAA has seen a minor rebalance from Real Estate to Alternatives. All other asset classes have maintained the same SAA benchmarks that were set in the December 2023 SAA.
All other changes focused on a level below the top asset class level and are aimed at optimising asset class allocations to leverage our views on the current economic cycle and capital market valuations.
Within Fixed Income, key changes include:
- An increase to both UK and US Government Bonds due to a combination of spread tightness and attractive absolute levels of yields. These are also highly liquid assets, should further attractive investment opportunities present themselves in the next 12-18 months.
- Smaller increases across Asian Fixed Income* and Emerging Market Debt**.
- These increases were funded by a reduction across Developed Market Investment Grade Credit and Global High Yield
*excluding Risk Managed Active 3
**excluding Risk Managed Active 5 and Risk Managed Passive 3
Within Equities, key changes include:
- An increase to US Equity, due to the implementation of the new RAFI index (see details below). Most of this allocation will be funded from UK Equities
- An increase to India Equities due to a new building block (see below)
Underlying Fund Changes in Half Year 2024
New US Equity Building Block
The introduction of a new active US Equity building block M&G (ACS) BlackRock US RAFI* Equity Index (RAFI) has enabled an increase to US equity within the active and passive fund ranges. Instead of being market-cap weighted, the weights of underlying stocks within the RAFI are based on the fundamental values of companies. We believe that this will reduce the concentration risk and improve the diversification within the US Equity exposure.
The RAFI Index ranks the investment universe of companies by four fundamental values: Sales, Cash Flows, Book Values and Dividends. It then provides equal weights to the above measures, averaging them over the past 5 years. The top 1,000 companies are selection for inclusion in the index, ensuring companies that are large, but also have depressed valuations, are not excluded. The weights of the companies, are based on the relative weights of the above four measures.
*Research Affiliates Fundamental Indices
See below fund holdings percentages for a breakdown of the US Equity building blocks as at 30.06.2024
| Security Descriptions | Passive 1 | Passive 2 | Passive 3 | Passive 4 | Passive 5 |
|---|---|---|---|---|---|
US Equity |
3.14 | 4.73 | 6.32 | 7.92 | 9.59 |
iShares US Equity Index Fund |
1.97 | 3.18 | 4.33 | 5.51 | 6.28 |
M&G (ACS) BlacRock RAFI Equity Fund* |
0.33 | 0.48 | 0.78 | 0.94 | 1.21 |
Russell 2000 E-Mini |
0.30 | 0.46 | 0.62 | 0.76 | 0.97 |
E-Mini S&P 500 |
0.54 | 0.62 | 0.59 | 0.71 | 1.13 |
*Actively managed fund
Source: M&G Treasury and Investment Office as at 30.06.2024
Improved physical exposure to European Real Estate
Within the Active range, the physical exposure to European real estate was increased via the M&G European Property Fund. Within the Passive range, physical exposure to European real estate was introduced via with M&G European Property Fund. This is an institutional property fund, usually only available to institutional investors. However due to the size of assets that the M&G Treasury and Investment Office (T&IO) manage, the Risk Managed Active and Passive ranges are able to leverage off of the size and scale, and gain access to institutional property funds.
See below fund holdings percentages for a breakdown of building blocks as at 30.06.2024
| Security Description | Active 1 | Active 2 | Active 3 | Active 4 | Active 5 |
|---|---|---|---|---|---|
Europe Real Estate |
0.83 | 1.08 | 1.21 | 1.41 | 1.64 |
iShares European Property Fund |
0.30 | 0.38 | 0.48 | 0.50 | 0.62 |
M&G European Property Fund* |
0.54 | 0.70 | 0.73 | 0.91 | 1.02 |
Asia Real Estate |
1.20 | 1.53 | 1.70 | 1.96 | 2.25 |
iShares Asia Property Fund |
1.20 | 1.53 | 1.70 | 1.96 | 2.25 |
| Security Descriptions | Passive 1 | Passive 2 | Passive 3 | Passive 4 | Passive 5 |
|---|---|---|---|---|---|
Europe Real Estate |
0.65 | 0.84 | 1.10 | 1.27 | 1.41 |
iShares European Property Fund |
0.37 | 0.46 | 0.65 | 0.83 | 0.98 |
M&G European Property Fund* |
0.28 | 0.38 | 0.45 | 0.44 | 0.43 |
*Actively managed fund
Source: M&G Treasury and Investment Office as at 30.06.2024
New India Equity Building Block
An allocation to Indian equities via ‘iShares MSCI India’ was introduced in recent years. The addition of the new M&G India Equity Fund has allowed both fund ranges to increase their India Equity exposure.
See below fund holdings percentages for a breakdown of building blocks as at 30.06.2024
| Security Description | Active 1 | Active 2 | Active 3 | Active 4 | Active 5 |
|---|---|---|---|---|---|
India Equity |
0.32 | 0.55 | 0.79 | 1.01 | 1.22 |
iShares MSCI India UCITS ETF |
0.30 | 0.38 | 0.48 | 0.50 | 0.62 |
M&G India Equity Fund* |
0.07 | 0.12 | 0.17 | 0.22 | 0.26 |
| Security Descriptions | Passive 1 | Passive 2 | Passive 3 | Passive 4 | Passive 5 |
|---|---|---|---|---|---|
India Equity |
0.42 | 0.62 | 0.84 | 1.06 | 1.27 |
iShares MSCI India UCITS ETF |
0.33 | 0.49 | 0.66 | 0.83 | 0.99 |
M&G India Equity Fund* |
0.09 | 0.14 | 0.18 | 0.23 | 0.28 |
*Actively managed fund
Source: M&G Treasury and Investment Office as at 30.06.2024
Recategorisation of Asset Classes
Within the Active range, a new ‘Other Strategies’ allocation has been introduced. This currently includes what was previously named ‘Diversifying Strategies’ and is a general allocation to Hedge Funds. This is intended to evolve over time to gain exposure to a core set of additional factors that are diversifying to the wider portfolio.
Alternatives now includes allocations to Private Equity and Infrastructure for the Active range and an allocation to Infrastructure for the Passive range.
Property has also been renamed to Real Estate to align with the terminology of our internal Real Estate investment manager M&G Real Estate.
The below tables show the changes to the strategic asset allocation benchmarks. Note than some figures may not sum to 100 due to rounding.
Active Range
Asset Class |
RMA 1 |
RMA 2 |
RMA 3 |
RMA 4 |
RMA 5 |
|---|---|---|---|---|---|
UK Equity |
-0.10% |
-0.40% |
-0.70% |
-1.00% |
-1.20% |
Europe Equity |
- |
- |
- |
- |
- |
North America Equity |
0.20% |
0.50% |
0.90% |
1.20% |
1.50% |
Japan Equity |
-0.10% |
-0.20% |
-0.20% |
-0.20% |
-0.30% |
Asia Equity |
0.10% |
- |
- |
- |
-0.10% |
China Equity |
-0.10% |
-0.20% |
-0.30% |
-0.40% |
-0.50% |
India Equity |
0.20% |
0.30% |
0.50% |
0.60% |
0.80% |
Emerging Markets Equity |
- |
- |
- |
0.10% |
0.10% |
Middle East and Africa Equity |
-0.10% |
-0.20% |
-0.20% |
-0.20% |
-0.30% |
Total Equity |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
Infrastructure |
0.30% |
0.40% |
0.50% |
0.70% |
0.80% |
Private Equity |
0.10% |
0.10% |
0.20% |
0.20% |
0.20% |
Total Alternatives |
0.40% |
0.60% |
0.70% |
0.90% |
1.00% |
UK |
-0.20% |
-0.30% |
-0.40% |
-0.50% |
-0.60% |
Europe |
-0.10% |
-0.10% |
-0.10% |
-0.10% |
-0.20% |
Asia |
-0.10% |
-0.10% |
-0.20% |
-0.20% |
-0.30% |
Total Real Estate |
-0.40% |
-0.60% |
-0.70% |
-0.90% |
-1.00% |
UK Investment Grade |
-1.30% |
-0.80% |
-0.10% |
0.10% |
0.00% |
EU Investment Grade |
-0.30% |
0.00% |
0.20% |
0.20% |
0.10% |
US Investment Grade |
-2.40% |
-1.50% |
-1.20% |
-1.00% |
-0.60% |
UK Government |
1.10% |
0.80% |
0.60% |
0.40% |
0.10% |
US Government |
1.40% |
1.10% |
0.80% |
0.50% |
0.20% |
Asia Fixed Income |
1.70% |
0.60% |
-0.10% |
0.20% |
0.40% |
Convertibles |
0.40% |
0.40% |
0.30% |
0.20% |
0.20% |
Global High Yield |
-0.70% |
-1.00% |
-0.80% |
-0.70% |
-0.50% |
Emerging Market Debt |
0.10% |
0.40% |
0.30% |
0.10% |
- |
Total Fixed Income |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
Passive Range
Asset Class |
RMP1 |
RMP2 |
RMP3 |
RMP4 |
RMP5 |
|---|---|---|---|---|---|
UK Equity |
-0.30% |
-0.50% |
-0.80% |
-1.20% |
-1.60% |
Europe Equity |
-0.20% |
-0.40% |
-0.50% |
-0.70% |
-0.90% |
North America Equity |
0.50% |
0.80% |
1.20% |
1.60% |
2.10% |
Japan Equity |
-0.10% |
-0.10% |
-0.10% |
- |
- |
Asia Equity |
-0.45% |
-0.60% |
-0.75% |
-0.75% |
-0.75% |
China Equity |
0.20% |
0.30% |
0.40% |
0.60% |
0.70% |
India Equity |
0.20% |
0.40% |
0.50% |
0.70% |
0.90% |
Emerging Markets Equity |
-0.40% |
-0.60% |
-0.90% |
-1.10% |
-1.30% |
Middle East and Africa Equity |
0.20% |
0.40% |
0.60% |
0.80% |
1.00% |
Total Equity |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
UK Investment Grade |
-1.30% |
-0.80% |
-0.20% |
-0.10% |
0.10% |
EU Investment Grade |
-0.40% |
-0.40% |
-0.30% |
-0.20% |
- |
US Investment Grade |
-1.40% |
-1.50% |
-1.50% |
-1.20% |
-0.90% |
UK Government Debt |
1.40% |
1.20% |
0.90% |
0.60% |
0.30% |
US Government Debt |
1.80% |
1.50% |
1.20% |
0.80% |
0.50% |
Asia Fixed Income |
0.80% |
0.80% |
0.70% |
0.60% |
0.40% |
Global High Yield |
-1.00% |
-0.90% |
-0.80% |
-0.60% |
-0.40% |
Emerging Market Debt |
0.10% |
0.10% |
- |
0.10% |
0.10% |
Total Fixed Income |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
Source: Treasury and Investment Office as at 30.06.2024