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M&G Optimal Income

Elite Rated by FundCalibre

M&G are perhaps the biggest name in the UK fixed income space and this is their flagship offering. This “go anywhere” fund has a flexible mandate, which enables the manager to shift the interest rate exposure and to invest across the credit spectrum. The fund can, and often does, invest in equities and also derivatives.

Company Description

Founded in 1919, M&G Investments employs more than 1,500 people worldwide. The company, owned by Prudential plc, which is listed on the London Stock Exchange, focuses primarily on fixed interest and equities, but also invests in multi-asset and real estate. Its fund managers have an average tenure of 11 years, although many have been with the company for more than 20 years. Managers are given freedom to implement their own style on funds.

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Fund Manager

Richard Woolnough joined M&G in January 2004 and is fund manager of the M&G Optimal Income fund, the M&G Corporate Bond fund and the M&G Strategic Corporate Bond fund, three of the company’s flagship fixed interest funds. Richard began his career at Lloyds Merchant Bank in 1985. In 1995, he became a fund manager at Old Mutual. Richard graduated from the London School of Economics with a BSc in economics.

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With this flexible bond fund, I can invest across all of the fixed interest asset classes, allowing me to express my views on the direction of interest rates and the relative attractiveness of government and corporate bonds without constraints.

Richard Woolnough - Fund Manager

The Investment Process

From a macroeconomic viewpoint, Richard will actively manage the fund’s interest rate exposure in accordance to where he forecasts the direction of interest rates. He is also able to manage the asset allocation freely, and can move the fund into different areas of the credit spectrum, either investment grade or high yield, according to where he sees most value. At the micro level he, and M&G’s 60 strong credit team, look to identify mispriced issues, with the emphasis on avoiding losers, rather than picking winners.

Risk

This fund is considerably less volatile than the FTSE 100, although the fund can invest up to 20% in equities, which will make it more risky than many in its peer group, which invest only in fixed interest. Its size is becoming an issue as investment opportunities become harder to find, but the resources available at M&G go some way to alleviating this issue.

Our Opinion

Few, if any, fixed interest managers can demonstrate that they can add value through interest rate exposure management, asset allocation and stock selection. That is not the case with Richard Woolnough and the flexible mandate of this fund provides the perfect vehicle for him to exhibit his investment prowess. The fund has an impressive track record.

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