With the view that “most of the juice” has gone from the government bond trade in the developed world, the investment manager will continue to increase the equity weightings in the fund.
Having started the year with a fund weighting of 75% to government bonds, by the second week of October that figure had plummeted to minus 10% effectively, a combination of short-positions and some residual longs, and equities accounting for 72.5% of the fund.
Dave Fishwick, M&G’s head of multi assets, said that while the figure has since dropped to the mid-50s to accommodate a 20% weighting to US high-yield bonds, the fund is maintaining its aggressive outlook.
He said: “Since the change in risk characteristics earlier in the year to the second week of October, we’ve gone from a super-defensive view to as aggressive as we’d dare to be in these funds in that time period, all driven by relative pricing and the nature of the landscape.
“Having been optimistic about government bonds we now think that most of the juice has gone out of that trade in the developed world. Will they outperform slightly on our three-year view? They might, but we’ll suffer a lot of volatility around that.”
Fishwick explained that to allow for such an approach the fund is leaning towards a more granular investment strategy, giving more diversity within portfolios and lower risk, and also cited its adaptability in dealing with market change.
“We’re using derivatives, mostly index futures,” he said. “We do go down to the sector level – baskets of US banks, US technology stocks, meaningful index future positions across Europe and the rest of the world. We’ve gone a little more granular as broad-based equity valuations have deteriorated.
“This is, in terms of what we do, the most ‘go anywhere’ and ‘do anything’ fund we’ve got. The fund can change its views directionally and be very flexible, but the key thing we’re saying is that the risk and return properties of the assets vary meaningfully over time. When we look at it, the equity risk premium, the relative pricing of equity versus everything else, is probably still the last uncorrected expanded risk premium available on the planet.”
