Paul Fiddell, Business Development Manager, M&G Wealth, tells us what it means for advisers and their clients now that the M&G Wealth Platform hosts the complete range of PruFund smoothed funds.
Q. Putting PruFund onto an investment platform is a bit of a first for the industry?
Absolutely – this is the first time a leading smoothed fund range is available via an online platform – and M&G Wealth Platform is the only platform on which you can access these funds. So, it’s very exciting.
Q. What’s in the PruFund range?
PruFund Growth and PruFund Cautious are the two biggest and oldest funds, designed for those looking to grow capital and those looking to preserve it. The PruFund Risk-Managed Range was introduced in 2011 to offer a family of funds spanning the risk spectrum.
The most recent addition in 2021 was PruFund Planet, which proactively invests in areas targeting positive social and environmental outcomes, such as health, education and climate action.
Q. What’s the concept behind PruFund?
PruFund has two elements. On the one hand, it has a strong investment engine in the form of an exceptionally-diversified multi-asset fund that spreads investment risk across markets and asset classes.
Second is the smoothing mechanism that seeks to reduce short-term fluctuations in the fund’s value to give investors a less volatile investment journey.
The performance of the underlying investments would stand up on their own. But when you add smoothing into the mix, you’ve got a very compelling product that’s now used by over 450,000 customers.
Q. Smoothing isn’t a new idea – so what’s different about PruFund?
Traditional with-profits funds have sought to provide a means of smoothing returns for investors. But historically they’ve been very opaque in how that’s done, with bonuses and market value adjustment factors decided by actuaries.
PruFund aims to be more transparent. Each fund has an expected growth rate (EGR), which is applied to the fund each day. Should rises or falls in the underlying portfolio value be significantly higher or lower than the EGR, a unit price adjustment kicks in. So, it’s highly systematic and hopefully, far easier for clients to understand.
Q. In terms of investment, how does PruFund differ from any other multi-asset fund?
One major difference is its ability to invest in long-term, illiquid assets. This is partly because it’s an insurance fund with greater regulatory freedom than, say, an OEIC to invest in assets like commercial property and infrastructure.
Also, as part of the Prudential With-Profits fund, PruFund has assets of almost £60 billion. That size enables it to invest directly in projects that are simply outside the reach of other multi-asset funds.
Take, for example, M&G’s flagship offices, 40 Leadenhall, in the City of London. This has involved a commitment of £900 million. Once completed, it will provide 900,000 square feet of space, of which 820,000 sq. `ft will be lettable. So that should generate significant long-term rental income for PruFund investors.
Size also means PruFund has the resources to appoint specialist managers to invest directly in any market – be it China, Africa or India. Quite simply, investors are buying into one of the largest and most diversified multi-asset funds in the UK.
Q. How’s all this translated into performance?
Performance been strong over a long period of time. PruFund Growth and even PruFund Cautious have outperformed the average Mixed Investment fund on a total return basis, while experiencing far less volatility thanks to the smoothing mechanism (see Figure 1).
What’s more, even where regular amounts are drawn down, the funds have still maintained or increased their capital value (see Figure 2).
Given concerns around sequence-of-return risk (broadly, the risk that taking income during market falls will exacerbate losses in underlying capital), this track record should be welcome to income-seekers such as retirees. Although, of course, past returns are never a guide to the future.
Figure 1: Performance of £20,000 ISA investment, September 2018 – August 2023
Source FE Fund Info
Figure 2: Performance of £100,000 SIPP investment with £250 monthly withdrawal, September 2018 – August 2023
Source FE Fund Info
Please remember the value of an investment can go down as well as up and your clients may get back less than they’ve paid in. Past performance is not a reliable indicator of future performance.
Q. For what type of clients is PruFund likely to be of interest?
PruFund may be of interest for any client that needs to take some risk to achieve their investment objectives but who would prefer a smoother ride in order to get there. That includes younger clients seeking principally to grow their capital. Since Pension Freedoms were introduced in 2015, it has also seen strong interest as a decumulation solution – especially given the concerns about sequence-of-return risk mentioned earlier.
Q. And will being on platform open it up to a wider audience?
I hope so! I think, in particular, it will be easier for advisers to take a core/satellite approach – perhaps using PruFund as the long-term heart of a client’s strategy and positioning other holdings available on the platform around it.
PruFund may also be very helpful for advisers taking a tranched approach to client decumulation, using short, medium and long-term pots of capital.
Markets are in very different territory and facing very different challenges than they have for the past 10 years. Portfolio construction now has to reflect that and PruFund could be a consideration to help advisers and their clients navigate this new environment successfully.