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Pru sold off equities before the markets took a tumble

Prudential pulled 3bn of with-profits money out of equities in the first half of this year to reduce the 69bn fund’s risk profile.

The company decided in March to cut 2bn from its holdings in UK equities and trim back its Asian equities’ exposure from its with-profits life fund and has recycled the bulk of this cash into fixed interest.

This helped the Pru fund escape the worst ravages of the May correction and over the six months to the end of June, the fund returned 4.2 per cent before tax, in line with the FTSE All Share index.

Fund manager Martin Brookes says the team moved aggressively back into equities last year, increasing its weightings in the US and Europe in particular.

But following the market rally, the funds’ equity exposure reached close to 60 per cent by the end of 2005, prompting a strategic decision to pare back equity exposure.

Brookes says: “The decision to sell equities was made in March and 70 per cent of the equities were sold by the end of April before the big sell-off.

“We did not expect the markets to fall by 10 per cent but we did well out of it.

“Earnings have gone up more than the markets in the last six months and we think the fixed-income markets are valued about right.”

Brookes says the fund’s asset mix at the half year now stands at 37.5 per cent UK equities, 16.7 per cent overseas equities, 15.7 per cent property, 24.8 per cent fixed income, 3.1 per cent cash and 2.2 per cent alternative assets.

He says: “We are looking to double the fund’s exposure to alternative assets in the next three years and hedge funds and infrastructure, such as PFI, interest us most.”

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