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Cazalet upgrades Pru WP

Prudential’s with-profits fund has been upgraded in the Cazalet with-profits ratings but the outlook remains bleak for most investors in the sector.

Despite a marginal increase in the average equity exposure of with-profits funds in the first half of this year from 33 per cent to 34 per cent in the same period last year, less than one in four funds has equity exposure of more than 50 per cent.

Cazalet Consulting director Ned Cazalet says he expects this figure to decline steadily due to negative cashflow and the increasing burden of guarantees.

Only three with-profits funds have equity weightings of 60 per cent or more – Liverpool Victoria, Wesleyan and NFU Mutual.

Pru’s upgrade from eight out of 10 to nine follows a sustained period of strong returns that has seen it significantly outperform its peers over three and five years.

Cazalet says the Pru fund has minimal liabilities to endowment misselling claims and annuity guarant-ees which is in stark con-trast to its Scottish Amicable sister fund.

The asset allocation of the fund’s estate, or sur- plus assets, also mirrors the fund itself, which has hel- ped improve solvency by benefiting from the stock- market growth of the past two years.

Standard Life stays on a rating of five, and Legal & Gen- eral retains a rating of eight. Both companies invest their estate in fixed interest.

Cazalet says: “We rarely upgrade anything but Pru- dential is pretty clean on the liability side. The real paradox is that it has perfor- med so well but Prudential has struggled to write new business, so the new busi- ness strain is very modest.”

Central Financial Planning director Ian Smith says: “Prudential has got a good story to keep existing clients but the potential downside of with-profits means I cannot see them attracting a lot of new clients.”

Pru spokesman Steve Colton says: “Our asset-allocation policy has been a major con- tributor to the performance that has been delivered by our fund in recent years.”


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