M&G has launched a Ucits III version of a global macro strategy it has run successfully for the Prudential life fund for a decade.
Targeted initially to sophisticated investors including the multi-manager and discretionary spaces, the M&G Macro Episode fund is run by Dave Fishwick and Eric Lonergan, who aim to use their extensive experience in behavioural finance to exploit irrational events in investment markets.
M&G Macro Episode aims to deliver a higher return and lower volatility than global equities over the medium term, by taking long and short positions on an index level in equities, government bonds, credit, currency and cash.
Since the beginning of 2001, the strategy employed for the Pru has delivered an average 12.2% return per annum, net of fees.
Fishwick and Lonergan, who together have 40 years’ experience in investments and economics, say the strategy simply tries to exploit the movements in markets caused by the emotional elements of investing.
“Most active strategies tend to focus on an informational aspect, such as forecasting newsflow and understanding the dynamics of the underlying companies,” Fishwick says.
“This can work on a company level, but on a macro level it is extraordinarily difficult. Even if you understand the prospective economic dynamics, asset prices tend to dance to a different tune periodically.
“It is not the case most market movements can be explained by fundamental newsflow.
“Using behavioural finance elements, we believe a lot of what goes on is how people price their own perspectives of risk. You have these episodes in time where price actions become very aggressive, either positive or negative.”
The managers are currently running a number of long equity positions, with no equity shorts. Long positions are spread across a number of regions and indices, including the FTSE 100, Europe, Hong Kong, Korea, Australia and Thailand.
In bond markets, the managers are short on two and five-year US Treasuries, but they are more positive on the long end of the curve. They also have long positions in higher yielding currencies. Fishwick says all the positions are in liquid, transparent instruments.
Alongside the life fund and new Ucits vehicle, M&G also runs the strategy through an offshore vehicle based in the Cayman Islands.
M&G global head of sales Jonathan Willcocks says the group is responding to increasing investor demand for onshore and transparent products, with a high degree of liquidity.
Willcocks says M&G has intentionally launched the fund for sophisticated investors initially, with a minimum investment of £1m, as the group wants to ensure its clients can fully understand the underlying proposition.
“This fund is not like the traditional M&G Recovery or Corporate Bond fund, so we wanted to make sure they understood exactly what they are buying,” he says.
“I think the whole industry, this ‘Newcits’ space if you like, needs to provide a whole lot more education to the end investor.
“These strategies need to become more understood by investors and track records need to backed up over three or five years. Not many of the products have been tested through the whole cycle.
“These products all have the potential to be rolled out to retail investor, but we are just not there yet as an industry.”
The fund is available in dollar (unhedged), sterling (dollar hedged) and euro (dollar hedged) share classes.
