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RSMR on M&G Episode Multi Asset Funds

Rated Fund logo, Rayner Spencer Mills Research (RSMR) Company

Rayner Spencer Mills Research (RSMR) is an independent research company specialising in rating, comparing and analysing the full range of funds and products available in the UK. The following extracts are from the firm's review of the M&G Episode Multi Asset Funds range, the full version of which may be read here

Episode concept and overview

M&G defines an Episode as a period of time during which, in the opinion of the fund manager, assets become under or over-priced as a result of investors reacting emotionally rather than considering normal investment principles such as inflation or interest rates. An Episode can last a short period of time or several years.

The concept behind the Episode funds is they will try to exploit opportunities created by global macro changes that affect different asset classes in different ways. They look for episodes in the various asset classes they invest in that distinguish fundamental valuations from those created by behavioural biases. Episodes are often characterised by rapid price movement focusing on a single story that ignores fundamentals.

They work to the premise there are medium-term and short-term episode opportunities that both work on the same principles. The medium-term opportunities are seated in changes in fundamentals that unwind over longer periods like the Asian crisis or the tech bubble or the credit crisis.

The shorter-term or tactical ones are driven by volatility and correlation and often have little fundamental impact and can correct rapidly. Recent examples are the Arab Spring and Japanese Earthquake.

The team works to take advantage of these changes but do not seek to react to each one individually. Rather they seek to assess the relative impact of each opportunity on the total portfolio. Once this has been undertaken they aim to utilise the ideas in which they have the greatest conviction.

Each portfolio manager then considers its appropriateness for their portfolio and weights it according to the individual objective and constraints they have. They may also utilise conflicting ideas to hedge the potential impact on a portfolio.


The principle belief is that markets are broadly efficient in the longer term but still create many shorter term opportunities through behavioural inefficiencies. This can be explained by looking at how sentiment can drive markets in a certain direction creating correlation of assets and sub-asset classes that ignore fundamentals and can therefore create opportunities for mispricing of these assets.

The M&G team believes the greatest returns can be achieved by being in the right asset classes at the right time to take advantage of these anomalies. This belief is executed through a valuation framework that is combined with behavioural analysis.

They are not a value manager in the traditional sense but are looking for value signals to be become extreme in the range of asset classes they look at. They are not looking to exploit the opportunities at a stock level (although they could do this) but at an index or sector level. Sometimes opportunities may only be accessible through individually identified holdings, such as in fixed interest stocks. They do not operate as contrarian investors waiting for markets to normalise but as valuation investors looking to interrogate the reasons for market reactions.

RSMR comments

The premise of the range is to provide a set of funds that can deliver a differentiated solution for numerous client risk profiles. This has been developed from a set of existing funds and two new additions to complete the options. While they all fall under the same basic investment template and strategy they have different objectives and each manager is responsible for implementation of ideas within their portfolio.

The Episode concept is based on the ability of the managers to take of advantage of pricing anomalies created by the behavioural biases of investors – be that in the short or longer term. This gives the range a differentiated proposition to most multi-asset ranges, which tend to focus on returns from asset allocation and fund or stock selection. While these elements are of course part of the thought process of the managers, they are not the main source of return for the portfolios.


About Rayner Spencer Mills Research

Rayner Spencer Mills Research is an independent research company specialising in rating, comparing and analysing the full range of funds and products available in the UK. Founded in 2004, the firm and its individuals has experience both in the provider and advisory sectors while more recent industry experience centres on the areas of fund research and portfolio construction, product strategy and development and panel construction.

Please note: The data and information above does not constitute advice or recommendation and is not a substitute for independent financial advice. The data and information above has been prepared  with reasonable skill and care, but Rayner Spencer Mills Research does not warrant that the data collected by it, or supplied by any third party is wholly accurate or complete and the company will not be liable for any actions taken on the basis of the content or for any errors in the content supplied.

This has provided Rayner Spencer Mills Research with exposure to a variety of disciplines within the financial services arena, as successful product work relies on a good understanding of compliance issues, including sales policy and the sales process.

The team at Rayner Spencer Mills Research has many years of industry experience in a combination of sales, marketing, product research and analysis. In addition, the team has direct investment management experience and experience of managing an advisory business.

Market and regulatory environment

 By adopting a structured and robust approach to the area of fund analysis and research, an advisory firm will set itself apart from the rest of the sector while helping to meet their regulatory requirements with a fully documented process.

In this way the firm will continue the journey towards making its business fully ‘RDR compliant’, delivering improved levels of advice and building trust with its clients. This will help achieve longer-term financial sustainability and, as such, meet some of the key requirements of the Retail Distribution Review.

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