M&G UK Select Fund a sub-fund of M&G Investment Funds (2) Interim Short Report November 2020 For the six months ended 30 November 2020 M&G UK Select Fund Fund information The Authorised Corporate Director (ACD) of M&G Investment Funds (2) Investment objective presents its Interim Short Report for M&G UK Select Fund which contains a The fund aims to provide a higher total return (the combination of capital review of the fund’s investment activities and investment performance growth and income), net of the ongoing charge figure, than that of the during the period. The ACD’s Interim Long Report and unaudited Financial FTSE All-Share Index over any five-year period. Statements for M&G Investment Funds (2), incorporating all the sub-funds and a Glossary of terms is available free of charge either from our website at www.mandg.co.uk/reports or by calling M&G Customer Relations on Investment policy 0800 390 390. At least 80% of the fund is invested directly in equity securities and equity- An annual assessment report is available which shows the value provided to related securities of companies across any sectors and market investors in each of M&G’s UK-based funds. The assessment report capitalisations, that are incorporated, domiciled, listed or do most of their evaluates whether M&G’s charges are justified in the context of the overall business in the United Kingdom. service delivered to its investors. The report can be found at The fund usually holds a concentrated portfolio of fewer than www.mandg.co.uk/valueassessment. 50 companies. ACD The fund may also invest in other transferable securities directly and via M&G Securities Limited, collective investment schemes (including funds managed by M&G). 10 Fenchurch Avenue, London EC3M 5AG, UK The fund may also hold cash and near cash for liquidity purposes. Telephone: 0800 390 390 (UK only) Derivatives may be used for efficient portfolio management and hedging. (Authorised and regulated by the Financial Conduct Authority. M&G Securities Limited is a member of the Investment Association and of Investment approach The Investing and Saving Alliance (formerly Tax Incentivised Savings Association)) The fund employs a disciplined approach to investment which concentrates on the analysis and selection of individual companies. The investment approach seeks to identify UK companies that have Important information sustainable competitive advantages leading to high return on invested The World Health Organisation declared the COVID-19 outbreak a capital. Each company’s strategy around capital allocation is central to the pandemic on 11 March 2020. investment process. Global financial markets have been reacting to the outbreak. All markets The fund manager focuses on companies which recognise the importance have incurred increased volatility and uncertainty since the onset of the of dividends, which in turn instils capital discipline and ensures that the pandemic. highest returning growth projects are prioritised. The ACD has also noted the operational risks that are posed to the Rising cashflow, and over time, rising dividends, for the fund’s holdings are Company and its service providers due to global and local movement expected to drive the long-term total return of the fund. restrictions that have been enacted by various governments. The COVID-19 pandemic is an unprecedented event and the eventual impact on the global economy and markets will largely depend on the scale and duration of the outbreak. The ACD will continue to monitor this situation. 1 2 M&G UK Select Fund Fund information Benchmark The following table shows the risk number associated with the fund and is basedonSterlingClass‘A’shares. Benchmark: FTSE All-Share Index. The benchmark is a target which the fund seeks to outperform. The index Low risk High risk has been chosen as the fund’s benchmark as it best reflects the scope of the fund’s investment policy. The benchmark is used solely to measure the fund’s performance and does not constrain the fund's portfolio construction. Typically lower rewards Typically higher rewards The fund is actively managed. The fund manager has complete freedom in choosing which investments 123456 7 to buy, hold and sell in the fund. The fund’s holdings may deviate significantly from the benchmark’s constituents. The above number: • is based on the rate at which the value of the fund has moved up and For unhedged share classes, the benchmark is shown in the share class down in the past and is based on historical data so may not be a reliable currency. indicator of the future risk profile of the fund. • is not guaranteed and may change over time and the lowest risk number does not mean risk free. Risk profile • has changed during this period. From 1 June 2020 to 14 September 2020 the risk number was 5. The fund invests in the shares of UK-listed companies and is, therefore, subject to the price volatility of the UK stockmarket and the performance of individual companies. The fund typically holds around 50 stocks and this relatively concentrated profile requires the fund manager to have strong conviction in each and every holding. However, the fund is mainly invested in the shares of large and medium-sized companies, which are normally traded with relative ease. Diversification is key in managing liquidity risk and reducing market risk. The fund’s risks are measured and managed as an integral part of the investment process. 3 4 M&G UK Select Fund Investment review As at 1 December 2020, for the six months ended Please note past performance is not a guide to future performance and the 30 November 2020 value of investments, and the income from them, will fluctuate. This will cause the fund price to fall as well as rise and you may not get back the Performance against objective original amount you invested. Between 1 June 2020 (the start of the review period) and 1 December Performance review 2020, the fund delivered a positive total return (the combination of income It has become almost par for the course in these interim and annual and growth of capital) across all share classes and outperformed the statements to say the period has been characterised by volatility. The six- benchmark FTSE All-Share Index, which returned 7.5% in sterling, and 6.5% month period from June to the start of December has been no different in in euros. that respect. On 1 March 2019 the fund’s objective changed to aiming to provide a The summer months saw a continuation in the rampant recovery in higher total return (the combination of capital growth and income), net of stockmarkets after the March nadir, with many indices exceeding pre- the ongoing charge figure, than that of the FTSE All-Share Index over any coronavirus levels. A reduction in virus cases, easing restrictions and five-year period. The fund has met its new objective over the last five years. monetary and fiscal support packages fuelled this resurgence. Technology, Fund returns were ahead of the FTSE All-Share Index, which returned 4.4% growth, quality, defensive and ESG (environmental, social, and corporate pa in sterling and -0.6% pa in euros over five years. governance) sectors led the rally. Debt-laden companies, cyclical ones and For the performance of each share class, please refer to the ‘Long-term those hurt by structural concerns, ESG laggards and those hurt by performance by share class’ table in the ‘Financial highlights’ section of the coronavirus restrictions suffered greatly. The bifurcation between ‘quality’ Interim Long Report and unaudited Financial Statements for M&G and ‘value’ had been happening for over a decade, but the virus has Investment Funds (2). accelerated it greatly. To give an indication of the performance of the fund, the following table Whilst markets struggled for direction in the autumn, events during early shows the compound rate of return, per annum, over the period for Sterling November provided the steroid injection needed to propel equity indices Class ‘A’ (Accumulation) shares. Calculated on a price to price basis with higher. On 4 November we began to see the shape of the US election result. income reinvested. On 9 and 16 November, Pfizer/BioNTech and Moderna both announced Long-term performance efficacy of between 90-95% of their vaccines. These are the bridge to life beyond coronavirus restrictions, and stocks reacted accordingly. Six Three Five Since months years years launch November’s 14.4% rise in the FTSE 100 Index goes down as its best 01.06.20 01.12.17 01.12.15 monthly performance since January 1989. % [a] %pa %pa %pa Sterling [b] Perhaps the most intriguing nuance within November’s bounce in company Class 'A' +11.0 +3.4 +4.9 +9.3 [c] share prices has been the shape of that performance. In contrast to the first 10 months of the year, value has been the dominant factor in November, [a] Absolute basis. and traditional value sectors have rallied strongly. Despite November’s [b] Price to price with income reinvested. rotation, the six months under review has been a period of material [c] 17 December 1968, the end of the initial offer period of the predecessor unit outperformance for the M&G UK Select Fund. trust. 5 6 M&G UK Select Fund Investment review Performance review ability to become a quality compounder. (The philosophy of the fund is When looking at individual stock contribution to performance, the most based on the theory of compounding of economic value. We look for pleasing aspect is the success of those companies we have invested in quality companies that can compound wealth by investing incremental during 2020.