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M&G’s Municchi: maximising opportunities in sustainable multi-asset investing

by Maria Municchi, Fund Manager at M&G Investments 

In the past few years, both individuals and institutions have been increasingly considering the social and environmental impact of their investments, alongside the financial prospects.

This has taken place against a backdrop of uncertainty within global financial markets that has been driven in large part by the COVID-19 pandemic.

Government involvement has gathered pace during this period, with many countries, including Belgium, France, Poland, Nigeria and Fiji issuing green bonds.

Meanwhile, more and more corporates are recognising the benefits of operating in a more responsible manner and are considering how to make the transition to a more sustainable business model.

The impact of the COVID-19 pandemic in terms of health challenges and the wider socio-economic impact cannot be understated, further serving to highlight global social inequality.

This is why impact investing, which refers to investments designed to generate positive societal outcomes alongside financial returns, has been highlighted repeatedly during this extraordinary period as one of the key ways to move forward.

What is sustainable investing?

Sustainable investing ranges from exclusion-based strategies to positive impact investing, as shown below.

At M&G, we define sustainable portfolios as those with one or more of the following:

  1. The investment universe is driven by sustainability-themed considerations, which might include climate change mitigation, pollution prevention, sustainability solutions (environmental, social) and approaches that address one or more of the UN Sustainable Development Goals (SDGs);
  2. There is a clear ambition, supported by explicit targets, to drive sustainability across the portfolio;
  3. An investment approach that selects companies/issuers with strong ESG credentials.

M&G’s Sustainable Multi Asset fund range

In the M&G Sustainable Multi Asset fund range, part of M&G’s Planet+ range of sustainable funds, we combine sustainable investing with our longstanding multi asset approach.

In order to suit a range of investor risk appetites, each fund is invested in different blend of equities, fixed income and cash, designed to allow the funds’ volatility to be kept below a specific ceiling.

M&G Sustainable Multi Asset Cautious Fund has the lowest volatility target limit of 9% (per annum; over a five-year rolling period). In keeping with this, its equity range extends from 0-35%.

M&G Sustainable Multi Asset Balanced Fund has a volatility target limit of 12% (per annum; over a five-year rolling period) and has a more even spread invested across the main asset classes, with an equity weighting of 20-60%.

M&G Sustainable Multi Asset Growth Fund has the highest volatility target limit of 17% (per annum; over a five-year rolling period) and therefore has the heaviest weighting to risk assets (55% to 100%).

The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested.

Finding opportunities

M&G’s well-established multi-asset allocation process aims to identify asset classes and sectors that we believe represent attractive value, including those that may be temporarily affected by investor behaviour. We use this approach for finding both long- and short-term opportunities.

Step 1: Valuations drive our strategic asset allocation over the medium term. We use a valuation framework based on real yields of all investable asset classes to determine whether we consider an asset to be over- or undervalued.

Step 2: Tactical asset allocation. We try to take advantage of ‘episodes’ — usually temporary phases of market weakness driven by what we consider to be irrational investor behaviour that is at odds with the fundamental economic facts. Where we identify an episode, we use the funds’ flexibility to make a (usually short-term) change to asset allocation.

Step 3: Implementing sustainability. Once an asset allocation has been determined, we build a portfolio that considers opportunities across the spectrum of responsible investing.

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