Prudential has defended the performance of its giant with-profits fund amid the coronavirus crisis, claiming few investments were “immune” to the record market falls during the first quarter of this year.
The pensions and insurance firm said today the mechanism used in its PruFund range had a “dramatic dampening effect” within the portfolios when equity markets and other assets crashed.
Prudential said it had been probed “a fair few” times about its PruFund range and quizzed on its performance amid the turbulent equity markets experienced in 2020.
Unit prices of the five risk-rated funds had dropped by between 7.41 per cent and 13.13 per cent in March, when markets were spooked by the coronavirus.
But Prudential explained it uses a ‘smoothing process’ which aims to protect investors from extreme short-term ups and downs of stock market investments, providing what should be a more stable rate of growth.
Through the ‘smoothing process’, Prudential applies an expected growth rate on the funds which reflects how it expects the funds to grow long-term, and unit price adjustments to take into account short-term movements.
Therefore if the gap between the actual price of the fund and the ‘smoothed price’ — which grows in line with the expected growth rate — becomes too wide, the value of the investment will be adjusted to match it.
By using this smoothing process, Prudential pledges to ensure that while investors do not benefit from the full upside of any potential stock market rises, they will not suffer the full effects of any downsides either.
Despite record market falls, Prudential received negative attention about the PruFund range's performance.
Scott White, director of communications at Prudential, said: “The large falls in the stock markets in March this year, and the indiscriminate drop in value of other assets, were reflected by downward unit price adjustments in many of the most popular PruFunds.
“While no investor wants to experience negative performance, few investments were immune during Q1 this year.”
Over the three months to March, the maximum downwards unit price adjustment applied to any PruFund was less than its industry equivalent, Prudential claimed.
| PruFund | PruFund: Max downwards UPA in March 2020 for each PruFund | Comparative Global Equity:Bond Portfolio | Average max peak to trough fall in Q1 2020 for market equivalent |
| Risk Managed 1 | -7.41% | 25:75 | -16.55% |
| Cautious | -9.78% | 36:65 | -18.15% |
| Risk Managed 2 | -9.31% | 40:60 | -18.90% |
| Risk Managed 3 | -11.04% | 55:45 | -20.93% |
| Growth | -11.99% | 70:30 | -22.69% |
| Risk Managed 4 | -11.91% | 70:30 | -22.69% |
| Risk Managed 5 | -13.13% | 85:15 | -24.24% |
Source: Prudential
Mr White said: “But with PruFund the unit price adjustments work in both directions. As equity markets and other assets recovered in part, upwards adjustments were applied.
“It takes a number of our professionals to focus on what PruFunds intend to deliver. The range is also supported by substantial amounts of information.”
Mr White added that the PruFund range was “understood and supported by thousands of independent financial advisers” across the UK.
imogen.tew@ft.com
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