Between the 13th and the 20th March Prudential announced a variety of Unit Price Adjustments (UPAs) to its popular PruFund range. Most notable of these is the UPA to the flagship funds, PruFund Cautious (PFC) and PruFund Growth (PFG).
A full list of Unit Price Adjustments can be viewed on the Prudential website at https://www.pru.co.uk/investments/investment-fund-range/prufund-range/ and then selecting “Historic Unit Price Adjustments” tab.
The objective of the PruFund range is to produce steady and consistent, long-term growth for investors by “smoothing out” market volatility.
Nonetheless, PFC & PFG ARE NOT “Risk Free” assets; both have investments in equities, approximately 25% and 50% respectively.
Although these falls appear sharp and sudden, when put in context to their respective sectors, both have performed well in comparison (See figure 1).
Figure 1: 1 year performance of PruFund Cautious vs the Mixed Investment 20-60% Sector and PruFund Growth vs the Mixed Investment 40-85% Sector.
For both PFC & PFG the automatic, non-discretionary UPA was triggered by the 5 working day average unit price of the underlying portfolio dropping over 8% and 10% respectively.
The only other time that we can currently relate to for the PruFund range is during 2008. Figure 2 shows the performance of PFG over the last 15 years.
Figure 2: 15 year performance of PruFund Growth vs the Mixed Investment 40-85% & Mixed Investment 20-60% Sectors.
Again, although the adjustment seems excessive in the short term, you can see that over the long term, Prufund Growth has not only comfortably achieved stronger performance, but has done so through a far less volatile journey, even in times of extreme uncertainty such as 2008 and 2020.
Even in 2008, markets did not see such a sharp drop as now. Perhaps we are now seeing an overreaction? Perhaps not! One thing for certain is that by holding investments within PruFund, it continues to give its smoothed return the very next day after the UPA. It then has the possibility of receiving a positive UPA should markets rebound strongly once we’re out of the Coronavirus crisis.
It is important to note that markets will recover – as always the timescale however, is unknown. We are at a low point right now, perhaps not the lowest, but given enough time, markets will again improve.
If you would like to discuss any of the information shown here, please contact one of our Advisers, Stuart Neale or Jack Jones.
