Three key investment calls defining our global multi-asset positioning

Shane Woldendorp, Investment Director - Global

Global markets delivered strong returns in 2025, yet beneath the surface, performance was far from uniform. Equities rallied broadly, but country-level and sector performance diverged sharply. Emerging markets outperformed developed markets, and cyclical sectors generally led defensives. Fixed income returned solidly despite ongoing rate volatility, while select commodities saw notable gains.

For investors, 2025 reinforced a key lesson: genuine diversification across asset classes and regions matters. Those who moved beyond the US benefited meaningfully, and those willing to challenge consensus narratives found opportunities that a purely index-driven approach missed.

This is precisely the positioning of the M&G (Lux) Dynamic Allocation Fund – a flexible, unconstrained global multi-asset strategy designed to deliver consistent absolute returns across market cycles. The fund combines valuation-driven insights, a long-term perspective, prudent risk management, and behavioural finance principles to create a portfolio that can exploit opportunities where others cannot.

Below, we outline three key calls that shaped the fund’s positioning in 2025 and highlight how this approach delivered differentiated results.

Key call #1: Preference for Rest-of-World (RoW) over US Equities
We entered 2025 with a strong preference for RoW equities over US equities, driven by more attractive valuations and subdued sentiment. This strategy aimed to avoid the concentrated risk inherent in US mega-cap and tech-heavy indices such as the MSCI ACWI.

Over the year, we rotated profits from stronger-performing regions into markets offering better value, maintaining convictions across the UK, Europe, Asia, Japan, and Latin America. The dispersion in 2025 proved this approach: emerging markets outperformed developed markets, and leadership rotated across regions, rather than concentrating in a handful of US stocks. This globally diversified, valuation-focused stance reduced reliance on a single market or factor while broadening return opportunities.

Key call #2: Positive on Developed Market duration
Long-dated government bonds in developed markets – particularly in the US, UK, and other major economies – were a core portfolio position. With yields elevated, these instruments offered an asymmetric return profile and acted as a counterbalance to equities during volatile periods.

Despite rate volatility, fixed income delivered solid returns in 2025, reinforcing the role of duration as an effective diversifier. Moving into 2026, long-dated bonds remain undervalued by the market, offering both income potential and diversification benefits as part of a multi-asset strategy.

Key call #3: Emerging Market local debt preferred over credit
Credit exposure is materially underweight. Tight spreads offered insufficient compensation for default and liquidity risks, making corporate credit less attractive compared with government bonds and other defensive sources.

In contrast, emerging market local currency debt provided elevated real yields and valuations supported by improving macro fundamentals. This positioning enhanced income and broadened diversification beyond developed market fixed income, introducing exposure to differentiated economic cycles, currencies, and policy regimes. In 2025, the strong performance of these bonds validated the strategy.

An unconstrained, flexible approach
The M&G (Lux) Dynamic Allocation Fund has no benchmark and targets absolute returns of 5–10% over rolling three-year periods. Equity exposure can reach up to 60%, giving the portfolio freedom to adjust dynamically as opportunities arise.

This flexibility is central to differentiation: the fund can diverge meaningfully from consensus – underweighting expensive US equities, limiting credit exposure when spreads are tight, or increasing allocations to less crowded segments like emerging market local debt. The result is a truly global portfolio, structured to exploit opportunities across markets and asset classes.

Performance in 2025 reflected this approach. The fund returned 16.8%1 in US dollars (for the one-year period to 31 December 2025), outperforming peers while maintaining disciplined risk management. Over the longer term, positive absolute returns have been achieved in approximately 99.6% of all rolling three-year periods, highlighting the focus on consistent, cycle-resilient performance.

Portfolio application for investors
The fund can be used in two main ways:

1. Standalone global multi-asset solution – allowing investors to outsource allocation decisions while targeting absolute returns within a typical balanced mandate.
2. Satellite allocation – complementing existing portfolios, particularly those heavily exposed to US equities or traditional 60/40 structures, reducing concentration risk and broadening potential sources of return.

Capturing upside, mitigating downside
In an environment of elevated valuations, persistent volatility, and market concentration, disciplined multi-asset construction is critical. The M&G (Lux) Dynamic Allocation Fund offers a distinct, flexible approach to capture returns while mitigating the risks inherent in crowded trades.