M&G Optimal Income Fund

One bond fund that can go wherever the best value lies

Whatever happens to interest rates in the future, there is one fixed interest fund that has the freedom to go wherever the best value lies. The M&G Optimal Income Fund is a fully flexible bond fund that seeks to provide strong returns in a wide variety of bond market conditions.

Managed by Richard Woolnough, the fund can invest across a broad range of fixed interest assets. At each stage of the economic cycle Richard aims to be invested in those assets that collectively provide the most attractive, or ‘optimal’, income stream for the fund. He has the flexibility to move freely between government bonds, investment grade corporate bonds, and high yield corporate bonds, and can even invest a portion in equities when they appear to be more attractive than a company’s debt. Investment grade corporate bonds are usually issued by established companies that are considered less likely to default on their debt payment obligations, therefore providing investors with a more reliable source of income; high yield corporate bonds are issued by companies with a higher risk of default – they have a potential for higher returns, but at an increased default risk. Other assets accessible to him include investing in other funds and in derivatives*.

This means Richard can position the fund in the most favourable areas at each stage of the economic cycle, giving the M&G Optimal Income Fund the potential to outperform funds that are limited to one particular bond sector.

All of this makes this fund an attractive investment route to take in today’s ever-changing economic landscape.

Reasons to invest

• The M&G Optimal Income Fund invests across the fixed interest spectrum, with the flexibility to go wherever the best value is to be found.
• It is designed to outperform the government bond, investment grade and high yield sector averages over the course of the economic cycle.
• The fund is the best-performing fund in its sector, the IMA £ Strategic Bond Sector, over the period since its launch in December 2006.
• The fund’s manager, Richard Woolnough, joined M&G in January 2004 and has over 20 years experience of managing corporate bond funds. 
• Richard can draw on M&G’s extensive in-house resources, which include one of the City’s foremost teams of fixed interest professionals (including fund managers and credit analysts).
• M&G’s fixed income expertise was acknowledged when we were named 'Best Specialist Fixed Interest House' for the third year running at the Morningstar Awards 2011.

How has the M&G Optimal Income Fund performed?

• Since its launch in December 2006, the fund has achieved a return of 53.2%, outperforming its sector, by 32.0%.

Please remember that you should not base decisions on past performance, prices may fluctuate and you may not get back your original investment.

Overseas investments may be affected by currency exchange rates. High yield bonds provide a greater risk to capital than investment grade corporate bonds. This fund provides a variable level of income. Interest rate fluctuations may affect the capital value of fixed interest securities held by a fund. Capital value is likely to fall when interest rates rise and vice versa. The value of your investment will fall if the issuer of a bond held within the fund defaults or is perceived as an increased credit risk.

The fund may enter into derivative* transactions for investment purposes. Although the investment manager will select the counterparties with due skill and care, there will be residual risk that the counterparty may default on its obligations or become insolvent. The use of derivatives, which may include strategies designed to generate exposure to investments exceeding the net asset value of the fund, may expose the fund to volatile investment returns. This may increase the volatility of the fund’s net asset value.

Source of all performance figures: Morningstar Inc., and M&G Statistics, bid to bid, net income reinvested, Sterling Class A Shares as at 31 January 2012.

All ratings as at 31 January 2012. Ratings should not be taken as a recommendation.

*Derivatives are financial instruments that derive their value from those of other underlying instruments such as equities, interest rates, commodities or market indices. Derivatives can be used efficiently and effectively to gain exposure to, or to hedge against, changes in the value of the underlying investments.