Regarded as one of the most unconstrained bond funds available on the market, the M&G Optimal Income fund gives manager, Richard Woolnough - one of the biggest names in corporate bond fund management - the flexibility to invest across the entire fixed-income universe. Depending on market conditions, Mr Woolnough can focus the fund on high-yield bonds, investment grade corporate bonds or government bonds of any maturity depending on where he sees the most value. Mr Woolnough can even allocate some of the fund's holdings into equities, and is upping the fund's exposure to this asset class.
Central to the investment philosophy of the M&G Optimal Income Fund, launched in December 2006, is that every bond has two characteristics: duration and credit risk. Duration is the measure of how sensitive a bond's price is to changes in interest rates, which is similar to the life of a bond, while credit risk is the risk of a company defaulting on its debts.At various stages throughout the economic cycle, credit risk or duration could be attractive, or both, or neither.
The optimal income stream is the combination of duration and credit risk that maximizes total return at any point in time.