M&G (Lux) Optimal Income J H USD Inc |
Morningstar's Take
|20/10/2023by Evangelia Gkeka
| On 17 Jan 2023, M&G Asset Management announced the appointment of Joseph Pinto as the next chief executive officer, effective in March 2023. Pinto will be joining the executive committee of M&G and will report to Andrea Rossi, who took over as the group chief executive in October 2022. He will be succeeding Jonathan Daniels, who announced his retirement effective June 2023 after 21 years at the firm. Pinto will be responsible for all investment capabilities across various asset classes, as well as distribution, operations, and proposition management for the asset-management division. With 30 years of experience, Pinto joins M&G from Natixis Investment Managers, where he held the position of head of distribution and investment solutions for EMEA, APAC, and Latin America, and global chief operating officer. He also spent 13 years at AXA Investment Managers, holding several senior positions, including global chief operating officer, global head of markets and investment strategy, and head of business development for South Europe and the Middle East. We maintain our Parent Pillar rating at Average. |
| M&G (Lux) Optimal Income, a Luxembourg-authorized SICAV, utilizes an established and time-tested process, offers exposure to a team that has experience in managing money across different stages of the credit cycle, and has achieved strong long-term performance in its established UK sister offering. This fund was launched in September 2018, when M&G decided that nonsterling share classes will move to Luxembourg to protect non-U.K. investors owing to Brexit. It currently represents GBP 7.8 billion out of the total of GBP 9.1 billion in the strategy. The Luxembourg vehicle is managed by the same team applying the same investment strategy and targeting the same outcome as the U.K. version. Performance for the two vehicles might differ slightly as they have a different base currency—the SICAV is euro-denominated and the United Kingdom vehicle is sterling-denominated—but each vehicle is hedging its respective nonbase currency exposure. Moreover, different inflows and outflows can lead to different cash levels, while different tax regimes can also be a source of tracking error between the two. Our conviction in the strategy is driven by manager Richard Woolnough, who is backed by M&G's well-resourced analyst team. His experience in macroeconomic analysis and ability to allocate across the fixed-income universe underpin the strategy's unconstrained approach. He began his career in 1985, joined M&G in 2004, and has managed U.K. sibling M&G Optimal Income since 2006. He is supported by deputy manager Stefan Isaacs and M&G's relatively stable retail fixed-income team of 11 other fund managers. It is the most flexible one managed by Woolnough, allowing exposures up to (with no minimum) 100% in investment-grade, high-yield, and government bonds, and up to 20% in equities. Although on the equity side, exposure has long been in the low single digits. Duration is actively managed, often using a derivatives overlay. The investment process combines Woolnough's macro views with bottom-up credit recommendations from M&G's 43 credit analysts. The U.K. sibling comfortably outperformed its peers and Morningstar Category index from its inception in December 2006 through September 2023. During a very difficult 2022, the fund declined by 11.9%, underperforming peers by 0.9% but outperforming its composite benchmark by 2.2%. The underweight duration positioning helped on a relative basis against its composite benchmark, as did good selection in financials, while exposure to UK credit and duration detracted particularly in the third quarter of 2022. |
Reduced underweight duration and took advantage of the spread widening after the 2022 selloff.To find out how Morningstar rates a fund click here.
| Morningstar Pillars | |
| People | High |
| Parent | Average |
| Process | Above Average |
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
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