In an era of market unpredictability, PruFund solutions stand out with an innovative smoothing mechanism that can help deliver more stable and secure returns for clients. As we lift the lid on PruFund’s diversified strategy, it is clear it can offer a more dependable solution for long-term investing and retirement planning.
The PruFund range of funds has carved out a significant niche in the investment landscape and across the financial industry since the original fund launched in 2004. It’s particularly appealing to advisers and clients seeking greater stability and predictability in their investment returns.
As market volatility continues to be a challenge, the innovative smoothing mechanism of PruFund, coupled with its robust multi-asset, globally diversified investment strategy, offers a compelling proposition. We look at what makes this one of the more attractive solutions available for long-term investing.
The smoothed solution for more cautious investors
The PruFund range of 12 funds from Prudential, part of the broader portfolio within M&G, is designed to offer smoothed investment returns, which can mitigate the impact of short-term market volatility and offer varying levels of risk and return potential.
This smoothing mechanism ensures that clients experience less drastic fluctuations in the value of their investments, making it particularly attractive to those with low-risk tolerance.
Understanding the PruFund smoothing mechanism
PruFund utilises a unique smoothing process to provide a more stable return pro‑le. The Expected Growth Rate (EGR) represents the long-term growth expectation of the fund, adjusted regularly to reflect ongoing market conditions.
What do advisers like about it?
Advisers appreciate the greater predictability that PruFund can offer, which simplifies the financial planning process and helps in managing client expectations. The diversification inherent in PruFund’s multi-asset approach further enhances its appeal by spreading risk across many asset classes and geographies, both public and private. The funds’ ability to maintain more consistent performance, even during periods of market turbulence, provides reassurance for both advisers and clients and helps them to ‘stay the course’.
Who are the ‘right’ clients?
Clients with low-risk tolerance tend to be the most obvious investors in PruFund due to its reduced volatility. The smoothing process means clients are less likely to experience the anxiety associated with significant market downturns. This characteristic makes PruFund an appropriate choice for more conservative investors, retirees, and those nearing retirement who prioritise capital preservation over aggressive growth.
Smoothed funds and the FCA’s retirement review
Retirement planning has become increasingly complex, especially with the introduction of pension freedoms and the subsequent shift towards income drawdown as a preferred retirement income vehicle. Thhe Financial Conduct Authority’s (FCA) thematic review of retirement income advice and the introduction of Consumer Duty have significant implications for advisers and their clients.
PruFund’s role in retirement planning
PruFund’s more stable returns pro‑le makes it a valuable component of retirement planning. Its smoothing mechanism can help manage the risks associated with income drawdown, such as sequencing risk, longevity risk, and investment shortfall risk. By providing a more predictable income stream, PruFund can help advisers to better plan their clients’ finances and sustain their lifestyle and financial wellbeing throughout retirement.
The FCA’s thematic review and Consumer Duty
The FCA’s thematic review emphasises the need for advisers to deliver good outcomes for clients, particularly in managing the risks associated with income drawdown. Under the Consumer Duty, advisers must act in good faith, avoid foreseeable harm, and support clients in achieving their financial objectives. This regulatory framework aligns well with the benefits provided by PruFund’s smoothed funds.
PruFund helps mitigate several key risks identified in the FCA’s review, notably:
• Sequencing Risk: By smoothing returns, PruFund reduces the impact of market downturns on withdrawals, protecting the longevity of the investment.
• Longevity Risk: The stability of returns allows for more accurate long-term financial planning, ensuring that clients do not outlive their assets.
• Investment Shortfall Risk: The diversified nature of PruFund’s investments and the smoothing mechanism work together to deliver consistent performance, reducing the likelihood of significant shortfalls.
Advisers using PruFund as part of their Centralised Retirement Proposition (CRP) can demonstrate compliance with Consumer Duty by showing how these funds help manage drawdown risks and deliver positive client outcomes.
A reputation as an industry leader
Long-term investment success hinges on an effective asset allocation strategy that can weather market volatility and deliver consistent returns throughout all market cycles. PruFund’s investment and management strategy stands out as an industry leader in this regard.
Keeping active and diverse
PruFund invests in a wide range of asset classes, including equities, fixed income, property, and alternatives. This diversification helps spread risk and capture opportunities across different market conditions. The fund is actively managed by a team of experienced professionals who continuously adjust the portfolio to reflect changing economic and market dynamics.
A volatility buffer
The smoothing process is central to PruFund’s ability to manage market volatility. PruFund provides a more stable return path which not only protects against short-term fluctuations but also instils confidence in long-term investors.
Expected growth and price adjustment
The Expected Growth Rate (EGR) and Unit Price Adjustments (UPA) are key components of PruFund’s strategy. EGR represents the long-term growth expectation, while UPA ensures that the fund’s performance remains aligned with these expectations. This systematic adjustment process keeps the fund’s growth on track, making it easier for advisers and clients to plan with confidence.
Weathering the storm
For twenty years, PruFund has demonstrated resilience in various market conditions. Its performance during periods of economic uncertainty and market volatility has underscored the effectiveness of its smoothing mechanism and diversified investment approach. By delivering steady returns, PruFund helps investors stay the course and avoid the pitfalls of market timing.
What does the industry say?
The consistency and reliability of PruFund’s performance have earned it recognition within the industry and a strong following among advisers. The fund’s ability to provide a smoother investment journey, coupled with its robust risk management framework, makes it an attractive option for long-term asset allocation.
Future outlook
As market conditions continue to evolve, PruFund’s flexible and adaptive investment strategy positions it well to navigate future challenges. The ongoing commitment to diversification, active management, and the smoothing process ensures that PruFund can remain an attractive solution for managing long-term investments amidst volatility.
An industry-leading solution
The PruFund range of funds has established itself as a cornerstone with advisers in the portfolios of their more risk-averse clients and those seeking stable retirement income solutions. Its innovative smoothing mechanism, diversified investment strategy, and alignment with regulatory requirements make it a standout choice for advisers and clients alike.
As the financial landscape continues to face uncertainties, PruFund’s ability to deliver consistent, smoothed returns positions it as an industry-leading solution for long-term asset allocation and retirement planning. Whether addressing the challenges highlighted by the FCA’s thematic review or optimising investment returns over the long term, PruFund remains a trusted partner for advisers in offering financial stability and long-term growth potential for investors.
For more information about the PruFund range, click here
