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Audience

Multi-Asset investment approach

At M&G, our multi-asset team have been managing dynamic and diversified portfolios for over 15 years. By combining behavioural finance, a valuation approach, and macroeconomic research, the team has created a unique and distinctive “episode” investment philosophy. 

The value of investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested.

  • Valuation Framework
  • Dynamic asset allocation
  • Asset class diversification
valuation-framework

Source: M&G 2018, for illustrative purposes only. The green columns show the expected return or real yield from each type of asset. The grey neutrality band is the level where the fund managers perceive the real yield to be a ‘fair’ reflection of the asset’s underlying value. Please note that this chart represents just the starting point for the team’s investment process and that behavioural finance insights are crucial to its interpretation. M&G does not have house views.

The valuation framework is key to determining whether to trade an asset. If an asset’s real yield is above or below neutrality this can point to an abnormality in the market or a price movement caused by human behavioural factors. This could create an opportunity for investment.

dynamic-asset-allocation

Source: M&G, Datastream, 31 December 2017.

Past performance is not a guide to future performance.

Dynamic asset allocation is achieved by identifying and exploiting opportunities created during ‘episodes’. M&G’s Multi Asset team developed their ‘episode’ investment approach based on the understanding that human behaviour means markets often do strange and unpredictable things.

asset-class-diversification

All the funds in the range are genuine multi-asset funds with the freedom to exploit opportunities across the global investment universe.

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Episodes


‘Episodes’ are usually temporary and can therefore present opportunities to adjust strategic allocation or tactically implement shorter-term ideas. Common characteristics of ‘episodes’ include:
Investors only focused on a single story
Rapid price movement
Price response inconsistent with observable fundamental factors
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The value of investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested.

  • Brexit

    Layer 4
  • The election of Donald Trump
    Layer 5
  • Weakness in the Mexican peso
    Layer 6
Market expectation Brexit: market sentiment was very negative in the first half of 2016, which was then compounded by Brexit.
Our reaction We added banking and Asian equity during this period as we believed the market was significantly undervaluing the asset class in light of robust signs of global recovery.
Outcome This decision led to gains for the funds as equities recovered in the second half of the year.
Market expectation The election of Donald Trump as US president: this unexpected event caused considerable market uncertainty.
Our reaction We maintained our equity positioning and increased our allocation to emerging market government bonds ahead of the election in the belief that this political ‘noise’ did not affect the economic fundamentals.
Outcome This meant that the funds were well-positioned for the sustained period of economic growth that developed from the end of 2016.
Market expectation Weakness in the Mexican peso: politics and panic selling had affected the price of the currency.
Our reaction However, we identified this price movement as a ‘mini-episode’ whereby, meaning that we expected the value of the peso to rebound once these fears abated. We therefore increased exposure to the currency in Dynamic Allocation and Prudent Allocation in January 2017.
Outcome This investment was highly successful; in March 2017 the peso rose in value against the US dollar by almost 6%.

M&G Allocation range

A choice of three funds to suit different client needs

M&G (Lux) Conservative Allocation Fund
The more cautious approach
10% 20% 70% COAL
A cautious, flexible fund designed for volatility-averse investors seeking a prudent approach to capital growth.
M&G (Lux) Dynamic Allocation Fund
The growth-focused approach
10% 40% 50% DNA
A balanced, flexible multi-asset fund designed for investors who want to balance the growth potential of equities with a diversified approach to risk management.
M&G (Lux) Income Allocation Fund
The income-focused approach
10% 30% 60% INAL
A multi-asset investment strategy for income seekers; the fund is designed to provide a growing level of income and capital growth.
Neutral positions
Equity
Fixed income: excludes cash and cash equivalents
Others: mainly real estate-related securities, convertibles and infrastructure assets for the M&G (Lux) Conservative Allocation Fund and M&G (Lux) Dynamic Allocation Fund; mainly convertibles for the M&G (lux) Income Allocation Fund.

The pie charts above show the neutral positions of the funds if all assets were trading at their 'fair value'. This can be thought of as a strategic asset allocation. In an ideal world, when all assets were trading at their 'fair value', then neutrality would be how a fund was positioned, given its strategy and risk profile. However, assets seldom trade at fair value, so the actual allocation of each fund may not match the neutral position.

The M&G (Lux) Dynamic Allocation Fund, M&G (Lux) Conservative Allocation Fund and M&G (Lux) Income Allocation Fund, Luxembourg SICAV funds, launched on 16 January 2018. On 16 March 2018, the M&G Dynamic Allocation Fund, M&G Prudent Allocation Fund and M&G Income Allocation Fund, (UK stand-alone authorised UCITS) merged into the respective SICAV funds. The SICAV funds are run by the same fund managers, applying the same investment strategy, as the respective UCITS funds.

The funds allow for the extensive use of derivatives. Please note these numbers are only internal guidelines that may change in the future

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Insights

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For Investment Professionals only. Not for onward distribution to any other type of client. No other persons should rely on the information contained on this website. Content should therefore be shared responsibly with other investment professionals. The value of investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested.