M&G Charity Multi Asset Fund – Investment update in the wake of Covid-19
Sadly, the pandemic crisis has sent global stock markets sharply in to reverse. This, coupled with a badly timed spat between Russia and Saudi Arabia that has caused a severe drop in the Oil Price, has also had knock-on effects on other markets, such as bonds, currencies and commodities. However, it is important to stress that this does not threaten either liquidity or provision of income from the fund; a 20%+ fall in capital does not automatically result in a similar hit on income, as many investors tend to assume.
While there will undoubtedly be a near term impact on earnings and distributions for corporations, the manager’s sense was that moves in March bore the hallmarks of ‘episodic’ behaviour: panic, and a focus on short-term price rather than long-term returns, which manifested themselves in rapid and correlated declines across most assets.
These price moves offered the opportunity for longer term investors to gain exposure to assets at compelling prices. The fund’s response was to add to equity positions and particularly areas with a ‘quality’ bias via the M&G Global Select and Positive Impact Funds. These new additions to the portfolio are funds which focus on companies with strong balance sheets and, in the latter case, offer solutions for long-term social and environmental challenges. In the near term, these should be somewhat more resilient to disruptions caused by economic lockdown.
We can expect to see deeply negative economic data being released over the next few months, including very scary unemployment numbers. The question is whether these numbers hold any information about the long term or are simply a reflection of a short term, self-imposed pause in activity. Policy makers around the world have taken a range of measures to support households, companies, and markets, often looking beyond the traditional emphasis upon interest rates. At the same time, recent data out of China is suggestive of a potentially rapid return to growth. That said, it seems likely that there are areas within economies that will never recover, and we do not know whether nations will face ‘second waves’ of outbreaks as is already being feared in Asia, or how far different policy responses in the initial phase will lead to differences in outcome over the longer term. More importantly for investors, how markets respond to developments is equally uncertain.
It is in just such emotionally challenging situations that the value of having a clear framework for dealing with uncertainty is necessary. The events so far in 2020 have shown yet again that seeking to gain an information edge in forecasting fundamentals is a dangerous approach. This is why our experience of managing multi asset strategies has reinforced our faith in adopting a reactive approach; seeking to capture the opportunities created when behavioural volatility does emerge.
In summary, our firm view is that the best opportunities for return today involve tolerating some additional volatility relative to our benchmark* (via higher equity exposure) and demonstrate the extreme rise we have witnessed in general asset volatility. During the first quarter of 2020, The M&G Charity Multi Asset Fund posted a total return of -21.9%; we recognise how uneasy this has made investors feel. However, this should be set in proper context; we have lagged our published market benchmark* (-16.3%) during the quarter, but this is largely accounted for by our higher relative weighting in global equities; we have succeeded in offering some relative protection when compared to the UK market over this period; the FTSE All-Share Index return for Q1 was -28.2%.
Finally, for those investors keen to seek reassurance on the income outlook, we are pleased to report that at this stage we foresee no reason why the fund cannot maintain the same level of income in 2020/21 as we delivered last year. At present valuations, the fund’s yield is now approaching 5.0%; this is attractive both for those seeking a strong income cashflow, and as a significant contribution to future total return.
If you have any further questions regarding performance and portfolio positioning on the M&G Charity Multi Asset Fund, please contact Richard Macey, Director of Charities, on 020 3977 3623, or via email at charities@mandg.co.uk
* Blended market benchmark is a representative composite mix of :- 45% FTSE All Share Index (UK equities), 30% MSCI AC World Index (global equities), 12.5% FTSE All Stocks Gilts Index (UK Gilts), and 12.5% BAML Non-Gilt Investment Grade Index (corporate bonds).
—Richard Macey, Director of Charities | M&G Investments
Posted 21 April 2020