Risk Managed Passive Range Guide. An introduction to the Risk Managed Passive range

Transcription

1 Risk Managed Passive Range Guide An introduction to the Risk Managed Passive range

2 An introduction to the Risk Managed Passive range This brochure covers the main features of our Risk Managed Passive range of funds, which are managed to meet an expected long-term volatility target to help target different attitudes to risk. The range gives you access to Prudential Portfolio Management Group (PPMG) for active asset allocation, with a focused selection of underlying funds that use predominantly (at least 70%) passive fund management approaches. You can choose between five risk-managed portfolios which can be matched to your attitude to risk. We will manage your money to achieve the best return we can for the level of risk you are willing to take. 2

3 Balancing Risk and Potential Reward Saving and investing is about putting plans in place for your long-term goals while making sure you have enough money set aside to cover regular expenses and emergencies. It s important to consider the level of risk that you are prepared to take with any investment and you can discuss this with your Financial Adviser. However, not all investments carry the same amount of risk. The rule of thumb is that the more risk you take, the greater the potential return but also the greater the potential loss. There are no certainties with investments so taking a higher risk does not guarantee a higher return and you may not get back your original investment. Decreasing risk Decreasing potential return Increasing risk Increasing potential return Assuming you are willing to accept some degree of risk for your investments and are prepared to invest over the medium to long term (ideally 5 to 10 years), we have a range of multi-asset funds that may suit your needs. In this brochure, we aim to outline key details of the Risk Managed Passive range. What is a Multi-Asset Fund? A multi-asset fund typically invests in many different types of investments including UK and international shares (equities), cash, property, and fixed-interest securities such as corporate bonds. Each type of investment (asset class) has its own level of risk and return. By spreading your investment across different asset classes, it can help to reduce the extreme ups and downs that you get when investing in a single asset class. This is often referred to as asset allocation. Diversification using Asset Allocation Asset allocation is an investment portfolio technique that aims to balance risk and create diversification by dividing investments across a range of asset classes like cash, bonds, equities, property and other alternative investments. Each asset class has different levels of return and risk, so each will behave differently over time. For example, a diversified portfolio that includes higherrisk investments such as equities as well as lower-risk investments such as bonds, will help to manage and lower your risk. If equities have dramatically decreased in value, the fixed interest from your bonds should still help to provide some offsetting stability. The asset allocation for each Risk Managed Passive fund is recommended by PPMG. Who is PPMG? Prudential s multi-asset team, PPMG, is one of the largest and most well-resourced in the UK. PPMG manages over 170 billion across a growing range of highly competitive multi-asset investment solutions and annuities, on behalf of Prudential UK and Europe. PPMG has great strength with access to over 800 investment professionals worldwide, including specialists in capital market research, investment strategy design, liability management, alternative investments and portfolio management. Source: PPMG, 30 June 2018 M&G Investment Management Ltd, part of the Prudential Group, are the investment managers for the Risk Managed Passive range. They make the relevant adjustments to the portfolios based on PPMG s recommendations. Please refer to the glossary on page 13 for more information on the terms used throughout this guide. 3

4 What are Risk Managed Passive funds? The Risk Managed Passive funds are a range of multi-asset Open Ended Investment Company (OEIC) funds designed to help meet your attitude to risk by using asset allocation. The numbering of the funds within the fund names i.e. Prudential Risk Managed Passive 1 fund, up to Prudential Risk Managed Passive 5 fund, indicates the increasing level of investment risk associated with that fund with 1 low and 5 high. The higher the level of investment risk, the greater the potential reward. The chart below shows the relative risk of our Risk Managed Passive funds. Increasing potential return Increasing risk Prudential Risk Managed Passive 1 fund Prudential Risk Managed Passive 2 fund Prudential Risk Managed Passive 3 fund Prudential Risk Managed Passive 4 fund Prudential Risk Managed Passive 5 fund Decreasing risk Decreasing potential return Please note that the numbers used within the fund names reflect the relative risk against the other funds in the fund range. They do not reflect the actual level of risk and are not intended to match the risk and reward profile number in the Key Investor Information Document. Other companies and risk rating agencies may rate risk differently. Link Fund Solutions Limited is the Authorised Corporate Director (ACD) of the LF Prudential Risk Managed Passive OEIC funds. The term ACD is used to describe the manager of an Open Ended Investment Company (OEIC). Please remember, investment returns are not guaranteed. The value of an investment can go down as well as up and you may not get back the full amount of your original investment. Please refer to the glossary on page 13 for more information on the terms used throughout this guide. 4

5 Investment objectives of the Risk Managed Passive range Prudential Risk Managed Passive 1 Fund This fund aims to achieve a long-term total (in excess of 5 years) return (the combination of income and growth of capital) by investing in a mix of assets from around the world and aims to limit volatility over rolling 5 year periods to 9%. There is no guarantee that the volatility ceiling will be met and at any time the actual volatility may be higher or lower than the long term target. Prudential Risk Managed Passive 2 Fund This fund aims to achieve a long-term (in excess of 5 years) total return (the combination of income and growth of capital) by investing in a mix of assets from around the world and aims to limit volatility over rolling 5 year periods to 10%. There is no guarantee that the volatility ceiling will be met and at any time the actual volatility may be higher or lower than the long term target. Prudential Risk Managed Passive 3 Fund This fund aims to achieve a long-term (in excess of 5 years) total return (the combination of income and growth of capital) by investing in a mix of assets from around the world and aims to limit volatility over rolling 5 year periods to 12%. There is no guarantee that the volatility ceiling will be met and at any time the actual volatility may be higher or lower than the long term target. Prudential Risk Managed Passive 4 Fund This fund aims to achieve a long-term (in excess of 5 years) total return (the combination of income and growth of capital) by investing in a mix of assets from around the world and aims to limit volatility over rolling 5 year periods to 14.5%. There is no guarantee that the volatility ceiling will be met and at any time the actual volatility may be higher or lower than the long term target. Prudential Risk Managed Passive 5 Fund This fund aims to achieve a long-term (in excess of 5 years) total return (the combination of income and growth of capital) by investing in a mix of assets from around the world and aims to limit volatility over rolling 5 year periods to 17%. There is no guarantee that the volatility ceiling will be met and at any time the actual volatility may be higher or lower than the long term target. 5

6 Combining active asset allocation and passive fund management the best of both worlds In addition to targeting different levels of risk, the Risk Managed Passive range combines active asset allocation with a passive fund management approach. By combining these two approaches, investors benefit from specialist investment expertise and cost-effective access to mainstream equity markets. Active asset allocation PPMG will take an active approach in defining the asset allocation of the Risk Managed Passive range. Passive fund management The Risk Managed Passive range allows for at least 70% investment in passive collective investments, with the flexibility to invest up to 30% in active asset classes. The Prudential Risk Managed Passive range invests in passive collective investments, also referred to as index-tracking funds. Index-tracking funds simply aim to replicate the performance of a given market, represented by an index. For most investors, one of the best known indices is the FTSE 100, which covers the largest 100 companies listed on the UK stockmarket. By looking at the performance of the FTSE 100, investors can get a feel for the performance of the UK equity market. FTSE is a trademark jointly owned by the London Stock Exchange plc and The Financial Times Limited and is used by FTSE International Limited ( FTSE ) under licence. 6

7 How are the Risk Managed Passive funds managed? The Prudential Risk Managed Passive range offers a choice of five risk-managed multi-asset collective funds each with its own risk profile, investing at least 70% in passive collective investments. M&G Investment Management Ltd, part of the Prudential Group, are the investment managers for the Risk Managed Passive funds. They make the fund selections and relevant adjustments to the portfolio based on PPMG recommendations. Each Risk Managed Passive fund is a fund of funds, which means that each invests in a range of underlying funds. Fund of funds can offer a simple solution to the challenge of selecting funds and diversifying across different types of assets. Within a fund of funds as part of an OEIC investment, underlying funds can be switched and replaced as often as is necessary without having to pay any Capital Gains Tax (CGT). Fund of funds are often called multi-manager funds. The diagram below shows how we invest in a range of active and passively managed funds within the Risk Managed Passive range. Fund of Funds Passive funds that track the performance of a range of indices Example Risk Managed Passive funds Typically invests in Active funds in markets where there are no suitable passive vehicles* This is a basic example to explain the content fund of funds approach. An explanation of the terms fixed interest, equities and alternative assets is available on page 13. Your Financial Adviser can provide more detail on the asset allocation of each Risk Managed Passive fund. Active funds that invest in alternative assets * such as high yield bonds, emerging markets fixed income etc. 7

8 Fund Management in more detail PPMG recommends the asset allocation for each Prudential Risk Managed Passive fund. Link Fund Solutions Limited the Authorised Corporate Director for the LF Prudential Risk Managed Passive OEIC funds, ensures that PPMG recommendations are in line with the funds objectives M&G Investment Management Ltd, part of the Prudential Group, execute the trades in order to conform to the asset allocation model set by PPMG 8

9 The types of assets that PPMG can propose for the Risk Managed Passive funds are: Cash This can include cash deposits and other money market investments. Over the long-term (over 15 years), money market investments usually offer the lowest risk of all asset types but also the lowest potential returns. These may be held to target security more than substantial growth. Or to have just enough in cash deposits to make sure money is available for customer withdrawals. Fixed interest A choice of passively managed funds that invest in assets such as corporate bonds or government bonds, from here in the UK and around the world. Alternative assets Alternative assets may include assets such as private equity and hedge funds. They can offer a higher potential return than other types of assets and can help the overall diversification of a portfolio. The alternative asset funds are managed by selected specialists depending on the area of investment. Property The fund s long term asset allocation has no exposure to property assets but the Fund Manager can invest up to 5% of the fund s assets in property funds, to take advantage of short-term tactical investment opportunities. Equities (using index tracking funds) A choice of funds that invest in company shares, or equities, and track a range of different stock markets around the globe. These index-tracker funds will be internally selected by PPMG. One aim of index-tracker funds is to provide a lower-cost way to invest than funds that are actively managed. 9

10 Types of funds that the Risk Managed Passive funds can invest in To help explain the fund of funds concept that each Risk Managed Passive fund uses, the information on this page relates to the holdings of the Prudential Risk Managed Passive fund 2, as at 21 January Risk Managed Passive 2 Fund as at 21 January 2019 For accurate details of the asset allocation of each Risk Managed Passive fund, please refer to your Financial Adviser. The types of funds used and the asset allocation split of each Risk Managed Passive fund will depend on the funds objectives. Asset allocations are regularly reviewed with MAGIM making any adjustments recommended by PPMG. Who is MAGIM? M&G Investment Management Ltd (MAGIM), part of the Prudential group, are the investment managers for the Risk Managed Passive range. They make the fund selections and asset allocations adjustments recommended by PPMG % Equities 37.50% UK Equity European Equity US Equity Japan Equity Asian Equity Emerging Market Equity Bonds 57.90% UK Investment Grade Bonds 40 High Yield Bonds 57.90% European Investment Grade Bonds US Investment Grade Bonds 20 Asian Fixed Income Levered Loans % Cash 4.50% Your financial adviser will be able to give you information on how you can access the Risk Managed Passive funds. Please refer to the Glossary on page 13 for more information on the fund terms used on this page. 10

11 What does the Risk Managed Passive range invest in? PPMG will select collective investment schemes to invest in from a focused range of funds and fund management groups (which may include other funds managed by Link Asset Services (the ACD), M&G Prudential and their associates). The funds currently invest in the following collective investment schemes. Asset Class UK Equity Europe ex UK Equity US Equity Japan Equity Asia Pac Equity GEM Equity Property Alternative Assets UK Fixed Income European Fixed Income US Fixed Income Global High Yield Cash Collective Investment Schemes ishares UK Equity Index L&G European Index Trust ishares US Equity Index ishares Japan Equity Index ishares Pacific ex Japan Equity Index ishares Emerging Markets Equity Index Tactical investments Various M&G Strategic Corporate Bond ishares Corporate Bond Index M&G European Corporate Bond ishares Euro IG Corporate Bond Index ishares US Corporate Bond M&G Global High Yield Bond ishares Cash Fund PPMG will regularly review their performance and may propose changes in the future. 11

12 Risk Managed Passive range in summary: The underlying funds will be selected internally by PPMG. Each Risk Managed Passive fund is a fund of funds, which means that each invests in a range of underlying funds PPMG recommend the allocations between asset types within each Risk Managed Passive fund The Risk Managed Passive range combines active asset allocation and passive fund management For more information on Risk Managed Passive funds or Prudential s range of investment funds and products, please contact your Financial Adviser. Please remember, investment returns are not guaranteed. The value of an investment can go down as well as up and you may not get back the full amount of your original investment. M&G Investment Management Ltd actively manage some of the underlying active funds The funds are available as OEIC investments Unit-Linked versions of the OEIC funds are available for investment in Prudential and Prudential International s products. Please note on 21 January 2019 we changed the names, investment objectives and reduced the fund charges for some of our funds. There could be an impact on the performance of the fund during a transition period after the fund changes happen. We estimate that this impact on fund performance will last for approximately one to seven months, depending on the fund you re in. Please speak to your financial adviser before making any fund switches. 12

13 Glossary Active management The traditional investment approach where fund managers actively build and change a portfolio of assets (e.g. stocks and shares) in order to take advantage of what they believe are the best opportunities. Alternative assets An alternative asset is an investment that is not one of the conventional investment types, such as stocks, bonds and cash. The main categories of alternative investments we use include infrastructure, private equity, alternative credit and hedge funds but other alternative investment strategies could also be used to diversify the funds. Assets Items that are owned by an individual such as property and investments. Money in a bank or building society account is known as a liquid asset. Assets may also be held in a fund. Bond Lower to medium-risk loans to the government or companies that pay you a fixed rate of interest. Capital growth Any money you receive in addition to the capital you ve invested when you cash in your investment. Collective Investments These pool money from many different investors into one fund, such as a unit trust, open ended investment company (OEIC) or investment trust. Corporate Bond A loan to a company that earns you income in the form of interest. (See also Bond). Equities Another name for shares held in a company or companies. Fixed Interest Securities More commonly known as bonds these are loans issued by companies or by governments in order to raise money. Bonds issued by companies are called corporate bonds, those issued by the UK government are called gilts and those issued by the US government are called treasury bonds. In effect all bonds are IOUs that promise to pay a sum on a specified date and pay a fixed rate of interest along the way. Fund Manager An individual who is employed by a company to manage money. It is a fund manager s aim to buy shares or other assets such as property or bonds that they believe will increase in value or provide a level of income. High Yield Bond This is a bond that generally has a low (or non-investment grade ) credit rating and which offers higher interest payments than a bond with a higher credit rating due to the increased risk of default by the company issuing the bond. It can also be known as a junk bond. Index Fund A fund that is managed so as to generate the same returns as a specified Index (also known as Passive or Tracker funds). Money Market Instruments Defined as cash and near cash such as bank deposits, certificates of deposits, fixed interest securities or floating rate notes, with, where applicable, a maturity date of under a year. Diversification Spreading your investments to help reduce the risk within your portfolio. 13

14 Glossary Open-Ended Investment Companies (OEICs) Instead of the buying and selling individual investments, this can be an easier and more cost-effective way to invest in the markets. An OEIC is a collective investment scheme, or managed fund, in which the money of many investors is pooled together and managed by a professional fund manager. This generally allows for greater access to a wider range of asset types and investments in the financial markets that are managed in accordance with the investment policy of the fund. Passive management The funds will be invested mainly (at least 70%) in passive collective investment, or building blocks. Pension Fund General term used to describe the investment fund built up in a pension plan which could be used at retirement to provide a continuing income. Pooled Investment Investments such as unit trusts, where a number of people put their money together to enable them to buy a wider range of investments, thereby spreading the risk. Property In the context of Property as a type of asset, investment is usually in commercial property such as offices, shops and industrial premises. Return A measure of performance. It is the total of the increase in value and any income received over a given period, expressed as a percentage. Shares See Equities. Stock market A place where shares or other securities are bought and sold, for instance the London Stock Exchange. Unit-Linked These funds operate like an OEIC but can only be accessed or held in a life, pension or international insurance product and can be distinguished from their OEIC fund equivalent by the omission of the prefix LF in the fund s name. They are invested almost entirely in the OEIC fund equivalent and have the same Investment Objective but differ in that they hold a slightly larger proportion of their holdings in cash and may be subject to different charging and taxation costs. Consequently their investment performance will be different to their equivalent OEIC fund. Volatility A measure of how much an investment s price is likely to fluctuate during a set period of time. 14

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16 pru.co.uk Prudential is a trading name of Prudential Distribution Limited. Prudential Distribution Limited is registered in Scotland. Registered Office at Craigforth, Stirling FK9 4UE. Registered number SC Authorised and regulated by the Financial Conduct Authority. RMPF /2019