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Prudential ‘Smoothed Funds’ and general investment update

 

Smoothed Funds

Prudential announced reductions in their Expected Growth Rates (EGR) across their range of ‘smoothed funds’ last week, 27/08/2019.

On their ‘flagship’ PruFund Growth fund they reduced the EGR from 6.20% gross to 5.90% gross on tax efficient products such as pensions, Investment ISAs and Offshore Bonds.  The gross EGR is reduced by product, fund management and advice charges.  These vary by product and volume etc.

This Monday, 02/09/2019, Prudential rationalised their reduction in the EGR and explained the current back drop for this reduction in EGR.  To precis, Prudential state that over the last quarter, 25th May to 27th August, Fixed Interest returns, particularly government bonds, saw a substantial drop in their annual yield of between 0.50% and 0.80%.  This is significant, for two reasons:

  1. A reduction in the 10- and 15-year Gilt yields will affect the so-called risk-free rate of investment returns, and
  2. Equity Based Investments across the PruFund fund ranges were reduced between March and June 2019

These two factors combined with the current backdrop and outlook effectively reduces the total expected returns across all asset classes.

As Prudential’s fund management team, The Treasury & Investment Office, focus on long term investment returns (at least 15 years), they have taken a long-term view on this.  Their view now is that a 5.90% gross return is reasonable over the long term based on the underlying basket of investment assets.

The ‘smoothed funds’ are very well diversified on a multi asset basis.  Prudential last changed their EGR on PruFund Growth in August 2016.  They tend to prefer not to change the EGR too regularly.

General investment update

Today I was at an investment seminar for the majority of the typical working day.  It was a good day with a wide variety of topics discussed including the following:

  • Orbis on investing for Drawdown
  • Janus Henderson on Sustainable investing
  • Columbia Threadneedle on Emerging Markets
  • Tatton IM on portfolio management post QE and upcoming structural considerations
  • Aberdeen Standard Capital the language of advice and regulatory change
  • BNY Mellon on the differing needs of income investors and the different styles and sources of income
  • Investec Wealth on an exploration of behavioural biases within investments
  • Blackfinch Investments on vulnerable clients. A key area for the FCA

Whilst the investment topics discussed varied widely some standard input was in evidence.  The following is normal for investors for the long term:

  • You need to remain invested in real growth assets, predominantly equities
  • Over the long-term equities outperform other assets. Be a long-term investor
  • Trying to time the markets is difficult and doesn’t work, remain invested

The current political backdrop locally and globally is disturbing but we all need to maintain the status quo and remain invested.

 

 

Steve Speed 03/09/2019