Risk v return: how can advisers support their more risk-averse clients’ needs for investment returns?

by | Nov 18, 2022

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The start of 2022 saw new highs for both the Dow Jones and S&P 500 indices while the UK’s FTSE 100 index reached its highest level since February 2020 as Omicron fears subsided.  Inflation was still being described as ‘transitory’ by many and most financial institutions were forecasting a range of 25bp rate hikes over the course of the year.

How things have changed.

The Russian invasion of Ukraine shifted the narrative dramatically.  Although China’s continued zero Covid policy, high employment, healthy household balance sheets and creaking supply chains may have continued to be inflationary, even in the face of gradually rising interest rates it is unlikely we would have seen the multi decade highs witnessed in recent months. The prospect of 75bps interest rate hikes soon became a reality.

More recently we have seen in the UK how unrealistic budget announcements can provoke a swift and brutal reaction from markets.

From reasonably positive beginnings, 2022 has morphed into an extremely tough year for financial assets with most major asset classes posting large double-digit losses. Much uncertainty still exists but for long term investors like the M&G Treasury & Investment Office, volatility and uncertainty can present opportunities if you are prepared to stay the course.

A smoothed investment solution

In such uncertain times, smoothed investment returns, such as those offered by the PruFund funds range, are one way of offering clients the opportunity for growth over the medium to long term (5 -10 years).

The PruFund range is supported by a globally diversified investment portfolio, across public and private markets, including significant exposure to real assets like commercial property and infrastructure. It also uses an established ‘smoothing process’ which aims to protect investors from the extreme short-term ups and downs of direct stock market investment.

In other words, the funds look to provide clients with a more stable rate of growth than they would get, if they were directly exposed to the daily changes in the fund’s underlying investment performance. So, while clients won’t benefit from the full upside of any potential stock market rises, they won’t suffer from the full effects of any downsides either.

We believe that in 2022 the whole PruFund range has delivered on these expectations.

To achieve this ‘smoothing’ the PruFund range of funds uses Expected Growth Rates (EGRs) and, where required, Unit Price Adjustments (UPAs), to deliver a smoother investment journey. Yes, there have been downward price movements in recent months, but this is against a backdrop of far greater falls in most of the main asset classes.

There may be times when the smoothed price of a PruFund fund on a particular day might be reset to protect the With-Profits Fund. There may also be occasions where Pru have to suspend the smoothing process for one or more PruFund funds for a period of consecutive days, again to protect the overall With-Profits Fund and those invested in it.

When this happens, the smoothed price for the affected fund(s) is set to the unsmoothed price for each day until the smoothing process in reinstated.


To find out in more detail about how the smoothing process works in practice View A Step by Step guide to the PruFund smoothing process (PDF) or watch the how PruFund works client video.

For more information about the PruFund range of funds click here

The value of investments can go down as well as up and your client may not get back what they have paid in.

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