At M&G, our multi-asset team has been applying its unique investment philosophy and process for over 15 years.

At the heart of their approach is a belief that investors often make judgements based on emotional impulses, like fear or greed, which can lead to irrational decision-making. When this behaviour is repeated throughout financial markets, assets can become mispriced. The team believes that when assets become too cheap, or too expensive, it can present compelling opportunities for long-term investors.

The value of investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested. The level of any income earned by the fund will fluctuate.

• Valuation Framework
• Dynamic asset allocation
• Diversification

Source: M&G 2018, for illustrative purposes only. The green columns show the expected return or real yield from each type of asset. The grey neutrality band is the level where the fund managers perceive the real yield to be a ‘fair’ reflection of the asset’s underlying value. Please note that this chart represents just the starting point for the team’s investment process and that behavioural finance insights are crucial to its interpretation. M&G does not have house views.

Establishing which assets appear attractively or unattractively priced is the cornerstone of the investment process. The team assesses a ‘fair value’ for a wide range of assets by looking at expected long-term returns. This ‘neutrality’ is then compared with the real yield of these assets, being the return expected after adjusting for inflation.

Where an asset’s real yield is above or below neutrality because of emotional market behaviour, this could create an opportunity for investment.

Source: M&G, Datastream, 31 December 2017.

Past performance is not a guide to future performance.

M&G’s Multi Asset team have a flexible investment approach and can adapt quickly and successfully to changing environments.

Dynamic asset allocation is achieved by identifying and exploiting opportunities created during ‘episodes’, when human behaviour makes markets do strange and unpredictable things.

All the funds in M&G’s Allocation range are actively managed to exploit opportunities throughout the global investment universe.

By investing across a range of asset classes and sectors, a diversified approach spreads risk. As different types of assets can behave differently under different conditions, it can also help to smooth the overall path of investor returns.

The value of investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested. The level of any income earned by the fund will fluctuate.

• Brexit
  
  
  
• The election of Donald Trump
  
  
• Weakness in the Mexican peso
  
  

10% 20% 70%

10% 40% 50%

10% 30% 60%

The pie charts above show the neutral positions of the funds if all assets were trading at their 'fair value'. This can be thought of as a strategic asset allocation. In an ideal world, when all assets were trading at their 'fair value', then neutrality would be how a fund was positioned, given its strategy and risk profile. However, assets seldom trade at fair value, so the actual allocation of each fund may not match the neutral position.

The M&G (Lux) Dynamic Allocation Fund, M&G (Lux) Conservative Allocation Fund and M&G (Lux) Income Allocation Fund, Luxembourg SICAV funds, launched on 16 January 2018. On 16 March 2018, the M&G Dynamic Allocation Fund, M&G Prudent Allocation Fund and M&G Income Allocation Fund, (UK stand-alone authorised UCITS) merged into the respective SICAV funds. The SICAV funds are run by the same fund managers, applying the same investment strategy, as the respective UCITS funds.

Fixed income assets are generally regarded as more stable investments compared to equities, where the returns can be perceived as riskier as they may be less predictable.

The funds allow for the extensive use of derivatives.

Consult the glossary