M&G Global Inflation Plus Feeder Fund ends 2023 on a high note

For investors looking for broadly diversified global exposure in their portfolios with a lower-equity, lower-risk approach that comfortably beats inflation, we’re pleased to report that the M&G Global Inflation Plus Feeder Fund delivered a strong performance in 2023, particularly in the last quarter. For Q4 2023, the fund returned 7.8% (net of fees), compared to global inflation (based on the OECD Major 7 CPI Total Index) measuring -2.6%. For the 12 months to 31 December, the fund produced a strong 19.1% return (net of fees) while global inflation measured 11.6%.

Not only did it outperform its benchmark, but the fund ranked #1 in its ASISA category versus its peers over both the year and in Q4. While part of the fund’s high absolute return was due to the rand’s depreciation against the US$ for the year, much of its strong relative performance was a result of a combination of stock picking, active tactical asset allocation and the management team’s active management of the fund’s fixed income exposure.

Within the M&G Global Inflation Plus Feeder Fund, the global equity and property holdings are primarily chosen using a proprietary machine-learning model (using artificial intelligence) to analyse all the thousands of global stocks available. During the quarter, the model’s stock choices contributed positively to performance: even though the total equity holdings outperformed on only 30 out of the 65 trading days of the quarter, the positive contributions from the stocks that did well more than offset the drag from underperforming stocks. And in terms of tactical equity exposure, the fund’s holdings in emerging market equities in Asia and Latin America, European equities and US financials all contributed to fund performance.

Meanwhile, rather than artificial intelligence, the fund’s global bond selection is managed by M&G’s large London-based fixed income team, in cooperation with other M&G bond teams around the world. And they were very active in both buying and selling during Q4 given the high volatility in global bond markets – for example, the yield on the 10-year US Treasury reached very attractive levels of just over 5.0% in October (briefly), and ended the year at around 3.8%. The team was able to buy 30-year UST’s, UK guilts and German bunds at relatively high yields and then take profits into the November-December rallies, adding good value to fund returns. In fact, the largest fixed income contribution to performance came from the fund’s long duration positioning as a result of exposure to these very long-dated bonds.

Such a diversified portfolio is likely to be a wise choice in 2024 given the likelihood of slower global growth and falling interest rates and inflation. In our view, global equity and bond valuations are less attractive now following their November-December rallies, but there are still many assets trading at relatively cheap valuations, and a selective approach should be a rewarding one.