Aim: income and growth by investing globally in bonds, property, cash, equities and alternative investment mainly through internally managed funds
Minimum investment: Lump sum £500, monthly £50
Investment split: Non-government bonds 35.2%, government bonds 36.2% property 10.5% cash 12.7%, equities 3.8%, alternatives 1.6%
Isa link: Yes
Pep transfers: Yes
Charges: Initial 5%, annual 1.35%
Special offer: Initial commission increased to 4%
Offer period: Until May 31, 2007
Commission: Initial 3%, renewal 0.5%
Tel: 0808 234 0808
Prudential’s managed defensive fund is a hybrid multi-asset fund of funds aiming for income and growth by investing mainly in funds from the Prudential Group, which includes M&G.
Hargreaves Lansdown senior analyst Meera Patel notes that the fund aims to provide inflation-beating returns through asset allocation and stock picking mainly through a fund of funds approach using Prudential/M&G’s own range of funds. “There is a good selection of funds with solid track records which gives me greater confidence that it is well placed in the market,” she says.
Patel points out that the fund offers diversification though UK and overseas equities, fixed interest including individual bonds, property and alternative investments. “Prudential is already familiar with running these types of balanced or cautious managed funds with the aim to provide a high degree of capital preservation,” she adds.
Looking at the type of investor for whom the fund would be suitable Patel says: “Given the nature of the fund’s investments with a high proportion invested in fixed interest, it may be suitable for investors needing an income and for those that are particularly risk averse. However, this does not mean investors may not lose money so they need to be aware this investment does not guarantee capital despite its cautious nature,” she says.
The fund will be able to use the new wider investment powers under Ucits III with the aim to enhance returns and diversify the risk in the portfolio. “Prudential has the proven skills in using assets like hedge funds, exchange traded futures and leveraged loans so it is not short of skills in these areas which gives them a good competitive advantage above some other investment houses,” says Patel.
Assessing the charges Patel says: “The fund has a competitive annual management charge of 1.35 per cent. The peer group average would be around 1.5 per cent, but the product’s low charge should not be the main reason to buy it. Other factors need to be taken into account.”
Considering the potential drawbacks of the fund Patel says: “While Prudential has the skills in using alternative investments, it is the application of these investments that will translate into success or failure. This remains to be seen.”
She also believes that asset allocation can be one of those tools that have the potential to go horribly wrong if the manager picks the wrong asset or region in which to invest a large proportion of the portfolio. “I have a little reservation on this front, but given Prudential’s experience in running cautious managed products, I would give them the benefit of the doubt,” she says.
She also highlights the fact that the product predominantly uses Prudential’s and M&G’s own range of funds. “While many of these funds have built up strong track records in recent years, it does restrict the use of funds from the wider market which could potentially offer better prospects than their own range. There is therefore a risk of other funds in the market providing superior returns compared to Prudential’s own selection,” she says.
Scanning the market for funds that are likely to provide the main competition Patel says: “There has been a spate of multi-asset funds that have launched in recent years. These include funds like the Newton phoenix, Miton strategic, Ruffer total return and Midas balanced income. However, all these multi asset funds have different approaches with varying degrees of asset allocation, so you would need to look with care when comparing performance. The Prudential fund appears more cautious than the names listed here so care needs to be taken when comparing these funds – but in essence the idea is to deliver total returns through a mix of assets.”
Summing up Patel says: “The fund has a high allocation in fixed interest. If equity markets perform well, this fund is likely to deliver lagged returns relative to funds with higher equity content so investors need to bear this in mind. The fund is designed for the cautious investor looking to diversify away from equities.”
She concludes that it is worth bearing in mind that equity markets have had a strong period and investors may wish to consider whether or not their asset allocation into equities is still appropriate in the current climate. “There is also a risk that we may see further equity market volatility in the short term and investors may wish to take this into account. This fund would therefore potentially offer diversification away from more volatile asset classes.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average