M&G has revamped the range of funds of funds it brought back in-house from Cazenove, prompting a turnaround in performance.
The group's portfolio management team, which is behind Prudential's with-profits fund and led by Mark Thompson, has shifted the investment process of the four funds, aiming to generate more returns from asset allocation.
As part of the revamp, bond holdings were switched into equities and assets moved out of the UK and US and towards Asia, Latin America and Europe. In the run-up to the switch, the funds were consistently in the bottom half of their sectors.
Since M&G retained investment control on 1 July, all are in the top halves of their respective sector.
Notable is the UK Growth Portfolio, which returned 4.87% between 1 July and 17 October, bid to bid, ranking it 63 out of 303 funds in the UK All Companies sector, according to Standard & Poor's.
Also performing well has been the Cautious Managed portfolio, which is fifteenth out of 58 in its sector over the same timeframe.
Thompson said: "We have changed the asset shape of the funds and, through that, changed a number of the underlying managers. We also changed some managers of our own accord because we did not think they were appropriate."
His 20-strong team is responsible for the asset allocation on £100bn of funds, as well as running internal and external manager of manager and funds of funds portfolios.
At the heart of the strategy for a while has been a view that weights equities over bonds.
For instance, the equity weighting on the Cautious Managed Portfolio has been increased from 46% to 57% with a corresponding drop in gilts, corporate bonds and cash.
The equity holdings themselves have been revamped from purely domestic stocks. Now, UK equity holdings are 41% of the total fund with 7.5% in Europe, 5% US, 3% Latin America and 1.5% Japan.
The team uses a behavioural finance approach that considers the long-run returns of asset classes in equilibrium and considers how this compares to valuations.
‘Important to have an anchor’
Report to be written by TPR
Lack of innovation for solutions
Some 2,000 consumers affected