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PruFund Growth update 28/02/2022

As you would expect volatility has been particularly high recently as we try to transition back to normal with our economies, with Central Banks and Governments policy changes, particularly in the UK and the US.  This volatility has been increased further by the Russia/Ukraine conflict as you will have heard in the news.  Thankfully most portfolios don’t have much of an exposure to Russia.

Over the last few days we have started to receive notifications of 10% or more drops in portfolio values for clients in the higher risk ‘unsmoothed’ funds and portfolios.  This is to be expected.

PruFund Growth is a very well diversified multi asset fund with ‘smoothing’ and it lags both a falling and a rising market but it is not immune to volatility.  Prudential updated us on PruFund late on Friday 25/02/2022.  You would expect some impact on your PruFund Growth investments now –  however the great news is as follows:

  1. No Unit Price Adjustment downwards on PruFund Growth
  2. The Expected Growth Rate (EGR) increases from 5.7% to 5.9% gross per annum
  3. A technical fund surplus has been declared following an actuarial assessment and an increase in value of 1.25% will be applied to PruFund Growth today (Monday 28/02/2022)

The above increase in PruFund Growth EGR rates is applicable to Pru pension products and ISAs.  Other products differ.

This EGR increase is really good news given the current challenges and backdrop of markets.  Other ‘smoothed’ Pru funds did not fare as well and in particular the new PruFund Planet ESG range of funds had some downwards Unit Price Adjustments applied.  As we have discussed, in my view this range of funds are too new to invest in for the majority of our clients.

However, the global impact of the conflict in Ukraine with the Russian invasion should not be under estimated.  The whole world will feel the impact of this invasion and the necessary sanctions economically.

Markets are disconcertingly dispassionate about geopolitical events such as this invasion of Ukraine, and their focus is more likely to return to the actions of Central Banks and Governments.

My thoughts are with the Ukrainians, brave people fighting a courageous battle.  I’m sure the majority of Russians, even their armed forces, don’t want to be in a conflict either.  Hopefully there will be a resolution soon.

Steve Speed

28/02/2022

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PruFund range of funds – EGR and UPA announcement

Please see below for Prudential’s latest announcement regarding Unit Price Adjustments for the PruFund range of funds, received by us late yesterday 25/05/2021:

At this quarter’s review, we’ve announced no change to the Expected Growth Rates (EGR) and upward Unit Price Adjustments (UPA) to a number of the PruFund range of funds this quarter end.

PruFund UPA announcement 

Today we’ve announced there’s upward UPAs to the following PruFund funds:

FundUPA applied 
Prudential Investment Plan  
PruFund Growth Fund +3.56%
PruFund Risk Managed 4 Fund +5.33%
PruFund Risk Managed 5 Fund 
+3.67%
Trustee Investment Plan 
PruFund Cautious Pension/ISA Fund +2.00%
PruFund Growth Pension/ISA Fund+3.91%
PruFund Risk Managed 2 Pension/ISA Fund +2.09%
 PruFund Risk Managed 3 Pension/ISA Fund +3.22%
 PruFund Risk Managed 4 Pension/ISA Fund  +2.67%
Prudential ISA 
PruFund Cautious Pension/ISA Fund +2.00%
PruFund Growth Pension/ISA Fund +3.91%
PruFund Risk Managed 2 Pension/ISA Fund +2.09%
PruFund Risk Managed 3 Pension/ISA Fund +3.22%
 PruFund Risk Managed 4 Pension/ISA Fund  +2.67%
PruFund Risk Managed 5 Pension/ISA Fund +3.45%
Prudential Retirement Account – Series D 
PruFund Cautious Pension Fund – Series D+2.00%
 PruFund Growth Pension Fund – Series D+3.91%
PruFund Risk Managed 2 Pension Fund – Series D+2.09%
 PruFund Risk Managed 3 Pension Fund – Series D  +3.22%
PruFund Risk Managed 4 Pension Fund – Series D   +2.67%
Flexible Retirement Plan 
PruFund Cautious Pension/ISA Fund+2.00%
PruFund Growth Pension/ISA Fund +3.91%
PruFund Risk Managed 2 Pension/ISA Fund +2.09%
PruFund Risk Managed 3 Pension/ISA Fund +3.22%
PruFund Risk Managed 4 Pension/ISA Fund +2.67%
International Prudence Bond / Prudential International Investment Bond 
PruFund Cautious (Sterling) Fund +2.00%
PruFund Growth (Sterling) Fund+2.88%
PruFund Growth (Dollar) Fund+2.95%
PruFund Growth (Euro) Fund+2.68%

Please note UPAs also apply to the protected versions of the fund where applicable.

On the monthly PruFund Investment Date, a UPA is applied if the unsmoothed price is:

  • 4%, or more, higher than the smoothed price, for our PruFund Cautious, PruFund Risk Managed 1 or PruFund Risk Managed 2 funds, or
  • 5%, or more, higher than the smoothed price for our PruFund Growth, PruFund Risk Managed 3, PruFund Risk Managed 4 or PruFund Risk Managed 5 funds.

Growth rates aren’t guaranteed. The value of an investment can go down as well as up. Your client may get back less than they have paid in.

More information on the EGRs and UPAs for each product is available on PruAdviser.

Prudential have said that they have had a strong 6 month performance since the 25th November last year.  It’s important to note that PruFund funds lag both a rising and a falling market.  The increases or reductions in PruFund via UPAs are formulaic and non-discretionary.  They are based on the maths and the difference in fund value between the underlying assets and the ‘smoothed’ price.

M & G’s Treasury & Investment Office (TIO) who manage PruFund for Prudential are in the middle of a Strategic Asset Allocation review.  Within the next month or two we will find out how they change their assets focusing on long term returns.

The Expected Growth Rates (EGRs) have remained the same.  For example on PruFund Growth 5.70% gross per annum.  EGRs give you an indication of what the TIO think long term returns will be over 15 years plus.

These upwards Unit Price Adjustments are some very positive news and demonstrate the recovery in the markets as a whole. These UPAs combined with previous UPAs over the past 12 months have brought the majority of the PruFund range of funds back to positions similar to those before the drops caused by the Coronavirus Pandemic.

Hopefully this trend of recovery and positive performance continues as we see mass vaccine rollouts worldwide and lockdown restrictions gradually eased. Although we may not be out of the woods yet and there are no guarantees, this increase in the UPAs is a reason for optimism.  

Take care.

Paul Green DipFA

26/05/2021

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M&G joins Powering Past Coal Alliance; plans to phase out coal

Please see the below press release from M&G:

M&G plc (M&G) is today joining the Powering Past Coal Alliance (PPCA) and announcing it wants to end investment in thermal coal by 2030 for developed countries and 2040 for emerging markets.

M&G’s coal phase out plan is a key step towards achieving its goal of net zero carbon emissions across its investment portfolios by 2050 at the latest, and helping to restrict global warming to 1.5 degrees in line with the Paris Agreement on climate change.

As stewards of long term capital, actively managing the savings of millions of people around the world, M&G will use its influence to accelerate the transition to a greener, cleaner economy with ambitious plans to cease all investment in new coal mines and coal-fired plants and to exclude public companies which cannot commit to a complete phase out of coal by 2030 in developed countries and 2040 in emerging markets.

As an asset owner, M&G will be implementing this approach to coal-related investments across its own internal portfolios over the coming year. As an asset manager, M&G will be working with clients to align existing mandates and funds to this position.

At the same time, through its growing range of sustainable investment funds, M&G is giving institutional clients and individual customers the opportunity to invest in technologies, infrastructure and services which offer financial returns as well as making a positive difference to the environment.

A link to M&G’s full position on investment in coal can be found here. https://www.mandgplc.com/responsibility/coal

Speaking at PPCA’s Global Summit today, M&G plc Chief Executive, John Foley, said: “An accelerated phase-out of coal is essential if we want to limit global warming and ensure a sustainable future for our planet. We are delighted to join the PPCA and fully support its work to encourage businesses, governments and other organisations to commit to a transition away from coal in the run up to COP26 later this year.”

Welcoming M&G’s commitment to the PPCA, Nigel Topping, COP 26 High Level Climate Champion, adds: “Phasing out thermal coal is a critical early step on the race to net zero. PPCA is a key part of the COP 26 Energy Transition Campaign, and it is fantastic to see M&G making this commitment in response to attending the PPCA ministerial round table co-hosted by the UK and Canada.”

As our clients will know, Prudential’s PruFund range of funds are managed by M&G’s multi asset  team, Treasury & Investment Office (T&IO) – one of the largest and most well resourced in the UK.

This is great news, and another step along the ESG road for M&G.

M&G plc aim to be carbon net zero as a corporate entity by 2030. Further, they aim to achieve 40% female and 20% ethnicity representation in their leadership by 2025.

Prudential Assurance Company aims to achieve net zero carbon emissions across AUMA (assets under management and administration) by 2050, of which the PruFund range is a material part, in line with the Net Zero Asset Owners Alliance.

The scale of PruFund allows the management team to use segregated mandates to apply a variety of implementation techniques for their ESG views, up to and including, exclusion of certain stocks or sectors from portfolios.

Currently their policy excludes investment in certain controversial weapons companies, namely cluster munitions and anti-personnel mines.

M&G look to the asset managers they select to engage with companies as active owners that help foster a more sustainable economy, participate in voting on key issues such as Climate Change and ensure that ESG is integrated into their investment processes. The majority of PruFund assets are managed by M&G, whose Responsible Investment team provide issuer and sector specific ESG risk and opportunity analysis and education on sustainability themes to portfolio managers and analysts.

Investments have recently been made with the PruFund range by purchasing a solar power plant in the Nevada desert.

Keep checking back for more ESG related content along with our usual market updates and outlooks from a variety of fund managers.

Andrew Lloyd

03/03/2021

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Prudential PruFund Funds Expected Growth Rate and Unit Price Adjustments Further Information

On 26/05/2020 Prudential announced Expected Growth Rate reductions on their smoothed funds and upward Unit Price Adjustments on some of their PruFund range smoothed funds.

Following these changes, I thought you would like more information and to keep it fairly straight forward I’ll focus on the key smoothed fund, PruFund Growth.

On PruFund Growth Prudential have announced an Expected Growth Rate reduction of 0.20% per annum down from 5.90% to 5.70% on pension, ISA and International Prudence Bond investments.

At the same time, while some of the other smoothed funds have benefited from an upwards Unit Price Adjustment (increase in fund value) PruFund Growth funds did not.

Why is this?

On the Expected Growth Rate (EGR)

  • The EGR is an estimate of the expected investment return over the long-term, at least 15 years
  • Prudential’s in-house stochastic asset model is used to generate a distribution of possible future investment returns (having regard to the current asset mix in each fund) over a 15 year period
  • It is preferable not to make frequent changes due to the long-term perspective

As a business we (P and B IFA) have flagged up for a while now that we expect lower investment returns for longer.  This is not a surprise as some of the key assets are producing far lower returns, cash interest rates and Government Bonds and other Fixed Interest assets.

To counter some of the lower returns Prudential have recently increased their equity content following a Strategic Asset Allocation review as noted in an earlier blog.

On the Unit Price Adjustment (UPA)

Why did the UPA not increase on PruFund Growth?  Timing was a key point.  The UPA down was applied to PruFund Growth on 17/03/2020.  For a few days after this UPA markets continued to fall.  Other ‘smoothed funds’ had their UPA a few days later, nearer the bottom for markets.

As a result, the PruFund Growth fund had further to grow back to hit the target to achieve an upwards UPA now.  The ‘smoothing’ limit for PruFund Growth is 5%, PruFund Cautious (with lower long-term returns) has a ‘smoothing’ limit of 4%.

PruFund Growth as a fund is now in a good position to either benefit from further increases in asset values or a good position should markets fall again.  Near the top of the ‘smoothing’ range without triggering a UPA.

Key Points

  • The smoothing process within PruFund is formulaic and non-discretionary
  • All versions of PruFund are operating as expected given investment market conditions
  • Where a particular version of PruFund has not yet had a positive UPA in 2020, the process should result in the fund being well positioned for any further recovery in markets

Summary

We have hit a bout of short-term volatility and although volatility has subsided a little now there is still plenty of risk in markets.  However, as long-term investors we just need to be patient and remain invested.  Markets will recover given time and so will your invested assets.

It’s also a good time to contribute to pensions and investments as asset prices are low now when compared to recent prices.  Both lump sums and regular monthly contributions will benefit you over the medium to long term.

I’ve been reviewing PruFund Growth since Prudential launched it as an investment fund in 2004.  It was interesting to see how this fund dealt with the Global Financial Crisis, stepped down in value and then stepped back up in value through a series of downwards and then upwards UPAs.  The fund worked and smoothed out a lot of volatility.

It has also delivered good average investment returns over the long term for it’s risk profile, 5/10 ‘Low Medium Risk’.

Steve Speed

28/05/2020

Useful links:

PruFund Blog 26/05/2020:     https://www.pandbifa.co.uk/prudential-prufund-growth-update/

Prudential Guide to Smoothing:                https://www.pruadviser.co.uk/pdf/PRUF1098101.pdf