With markets volatile, and British inflation stubbornly high, the hunt for income is a top priority for investors. So it’s no surprise that Richard Woolnough’s M&G Optimal Income Fund has been drawing attention. The £7.5bn bond-focused fund is up 51% over five years, compared to a 22% rise in the sterling strategic bond index, according to Trustnet.com.
Woolnough’s main focus is on high-yielding and investment-grade corporate bonds (72% of the portfolio), although the fund can also hold up to 20% in equities. Shares currently make up around 8% of the portfolio and include the likes of BP, Shell, Microsoft and Chevron, “where the prospect of growing dividends is high”, says Thisismoney.com.
Woolnough prefers corporate to sovereign bonds, where he believes that “yields are unattractive at their current level”, says Jonathan Miller in Citywire. In the last six months he has cut exposure to UK gilts, US Treasuries and German bunds from nearly 25% of his fund to around half that figure. He’s also underweight financials, fearing Europe’s banks will struggle to fund themselves without government support. “There is a wave of downgrades to come,” he told a Fidelity FundsNetwork forum.
Woolnough’s approach is more about “avoiding losers – companies or governments that default… than trying to find winners”, says Thisismoney.com. This makes his fund – which looks for high-quality company debt but mixes in some equity investment – a good option for those looking to balance “capital appreciation and capital preservation”, adds Morningstar.co.uk.
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M&G Optimal Income Fund top ten holdings
| Name of holding | % of assets |
|---|---|
| Treasury 2 1/2% IDX-linked gilt 2016 | 7.23% |
| Treasury 2 1/2% IDX-linked gilt 2013 | 3.74% |
| Northern Trust Sterling D | 2.04% |
| Germany (Fed. R) 3.0% BDS 04/07/20 | 1.82% |
| Treasury 2 1/2% IDX-linked gilt 2020 | 1.45% |
| Lloyds TSB 5.125% NTS 07/03/25 | 0.94% |
| Royal Dutch Shell | 0.75% |
| EDF 5.5% NTS 27/03/37 GBP100000 | 0.66% |
| JPM 4.5% GTD SUB NTS 24/01/22 | 0.6% |
| Barclays 4.25% CVD BDS 12/01/22 | 0.58% |