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M&G Episode Allocation Fund - Fund Manager Q&A


2018 was a challenging year for multi-asset investors, with some analysis suggesting that 90% of asset types delivered negative returns over the calendar year. Moreover, those hoping that a multi-asset approach would automatically provide diversification in short phases of stockmarket weakness were also disappointed. In February and October, it was the growing expectation of rising interest rates that prompted volatility, meaning that fixed income did not play its traditional diversifying role. In this note, Tony Finding, lead manager of the M&G Episode Allocation Fund, considers the main developments in the past year, discusses how his fund responded, and where it leaves us for the period ahead.

Q: What drove market volatility in 2018 and how did it affect fund performance overall?

Tony Finding: The main driver behind the rise in equity market volatility in the first three months of 2018 was the reintroduction of valuation risk, stemming from the upward movement in US interest rate expectations.

In other words, investors grew anxious of the prospect of rising rates and how this might put pressure on equity valuations. When cash rates become more attractive, investors can begin to seek higher compensation for holding other assets and this can cause their price to fall. This lay behind much of the turbulence across global stockmarkets in February and October.

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Please note that the value of investments and the income from them will rise and fall. This will cause the fund price, as well as any income paid by the fund, to fall as well as rise. Changes in currency exchange rates will also affect the value of your investment.

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The value of the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.
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