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.
Mr Woolnough uses a top-down investment approach to determine the optimal income stream throughout the economic cycle. Currently, he says he is long credit risk, but short duration. "We are bullish on inflation and interest rates remaining low for the short term and believe credit still represents good value," he says, but adds that he's worried about what might happen when new gilt issuance starts to outstrip demand towards the end of this year.
| M&G OPTIMAL INCOME FUND ACC | |||
|---|---|---|---|
| PRICE | 124.88p | 3-MTH PERFORMANCE | 10.13% |
| SIZE OF FUND | £928.68m | 6-MTH PERFORMANCE | 23.44% |
| No OF HOLDINGS | 402 | 1-YR PERFORMANCE | 18.5% |
| SET UP DATE | 8 Dec 06 | YIELD | 5.31% |
| MANAGER START DATE | 8 Dec 06 | MINIMUM INVESTMENT | £1,000 initial, £100 additional |
| TOTAL EXPENSE RATIO | 1.39%* | MORE DETAILS | www.mandg.co.uk |
Source: M&G, www.ft.com/funds, *Morningstar
Notes: Performance as at 7 September 2009
Top ten holdings as at 31 July 2009
| Holding | Percentage |
|---|---|
| JP Morgan | 1.8% |
| HSBC | 1.4% |
| Anheuser-Busch | 1.3% |
| Imperial Tobacco | 1.3% |
| Centrica | 1.2% |
| WPP | 1.2% |
| Tesco | 1.1% |
| BAA | 1.1% |
| Barclays | 1.1% |
| Deutsche Telekom | 1.0% |
Asset Allocation
| Asset | Percentage |
|---|---|
| Investment grade bonds | 67.7% |
| High yield bonds | 19.5% |
| Cash | 5.5% |
| Equities | 3.8% |
| Government bonds | 3.0% |
| Secured loans | 0.5% |
