PruFunds Require Glossary
In the UK, the PruFund suite of investments funds have proved very popular, and now New Ireland is offering them to Irish savers. However, brokers will have a job on their hands explaining to customers how PruFunds work.
In 2004, Prudential Assurance Company (PAC) launched its first PruFund in the UK market. There is c.€69bn invested in the fund range, actively managed by M&G, which acquired the Pru some years back.
PruFund Cautious and PruFund Growth are designed to reduce volatility and provide investors with more stable returns. New Ireland says they are aimed at people with a low to medium or medium appetite for investment risk, and the maximum investment is €5m.
The PruFund smoothing mechanism centres on Expected Growth Rates. Reviewed quarterly, EGRs reflect M&G’s view on how they think the funds will perform over the long term. When performance diverges significantly from the EGRs, adjustments are made through Unit Price Adjustment (UPA) and Unit Price Reset (UPR).
New Ireland explains that for the UPA, the fund manager compares the smoothed unit price against the unsmoothed unit price, which reflects the value of the underlying assets that the PruFund feeder fund is exposed to.
If these move too far away from one another, the fund manager adjusts the smoothed unit price to narrow the gap.
This could be a price increase or a price decrease. M&G also uses threshold tests to check the smoothed unit price against the unsmoothed unit price on a daily and monthly basis.
There are two types of Unit Price Reset: a Monthly UPR and a Fund Withdrawal UPR. For the former, New Ireland explains: “The unit price may be reset, i.e. the smoothed price is set to equal the unsmoothed price, when a number of specified conditions are met after the UPA daily and monthly tests have been conducted. Rules for these are pre-determined and no discretion applies.”
For the Fund Withdrawal UPR, the unit price will be reset to the unsmoothed price whenever withdrawals occur at or above set levels. “The purpose of this is to protect the feeder funds against excessive losses in the event of large outflows when the smoothed price is above the unsmoothed price,” New Ireland advises. “A reset will only happen if the relevant rules for each UPR apply.”
A sizeable number of investors have come to terms with this verbiage in the UK, where there are 450,000 PruFund savers. In Ireland, PruFund Cautious has a current EGR 4.7%, while for PruFund Growth the EGR is currently 5.4%. New Ireland cautions that EGRs are reviewed every three months, and may be higher, the same, or lower than they were at the start of an investment.
The Cautious fund has a current asset split of 56% equities and 26% bonds, while the Growth fund’s latest asset split is 45% equities, 28% bonds and 11% property. Annual charges are 0.25% to 0.35% higher than standard charges.
Global equity indices were battered in September and into October before a respite before Halloween. With no sign of inflation abating, central banks are expected to continue to pile on the interest rate agony, depressing markets still further.
One port in the funds storm (relatively speaking) is Zurich’s
Short Duration Corporate Fund,
which has a fund size of €1.1bn. The year to date decline of 5.3% compares favourably with nearly all funds with an equity bias.
The Zurich fund managers favour eurozone corporates (57%), followed by North America (15%), UK (10%) and European (9%). Zurich does not disclose any of the corporate borrowers.