Changes to the PruSelect Fund Range

While Morningstar OBSR believe the fund is still likely to achieve its performance objective over a full market cycle, volatility in returns has been extremely high in recent years. The use of Artemis' quantitative model, SmartGARP, has not resulted in consistent returns particularly when faced with multiple market inflection points. SmartGARP remains successful over longer timeframes and they therefore still consider the fund a viable option relative to peers. Morningstar OBSR think, however, a Bronze rating is a better reflection of the risk-reward profile of the fund.

The new Morningstar OBSR's fund ratings are now part of Morningstar's global Analyst Rating methodology scale that identifies positive as well as negative Analyst Ratings. OBSR's previous ratings scale of AAA, AA and A directly maps to the Morningstar positive ratings of Gold, Silver and Bronze. Morningstar OBSR fund research will also include Neutral and Negative ratings.

The fund previously held an OBSR AA rating. OBSR have been in close contact with the previous manager Mark Lyttleton, as well as Nick Little over recent months and are comfortable with the new manager's investment philosophy and process which OBSR believe are consistent with the requirements of a benchmark aware fund, but believe an A rating to be a better reflection of OBSR's conviction at the current time.

The fund previously held an AA rating. Ian Henderson, the fund manager since 1992, is to hand lead management duties to Neil Gregson on 1 February 2012 while continuing to support the team in a consultancy capacity. In the context of this change, OBSR believe an A rating is a more appropriate reflection of our ongoing conviction in the fund's prospects for attractive long-term performance through the continued philosophy of investing primarily in small resource producers.

The fund's AA Rating was previously suspended following the departure of former manager Andrew Holliman. OBSR hold Mr Weldon in high regard, but his management style has typically been associated with a more focused portfolio, namely the AA Rated Threadneedle American Select fund. OBSR therefore believe an A Rating to be appropriate at the present time for this more diversified, benchmark-aware offering.

Funds during this review were removed after either losing their rating or based on OBSR guidance.

Funds during this review were removed after either losing their rating or based on OBSR guidance.

Funds during this review were removed after either losing their rating or based on OBSR guidance.

Funds during this review were removed after either losing their rating or based on OBSR guidance.

Funds during this review were removed after either losing their rating or based on OBSR guidance.

Funds during this review were removed after either losing their rating or based on OBSR guidance.

Funds during this review were removed after either losing their rating or based on OBSR guidance.

Funds during this review were removed after either losing their rating or based on OBSR guidance.

The fund is offered as a core UK Equity fund and has typically displayed a growth bias. While acknowledging that the performance track record has been undermined by a very weak 2008, subsequently OBSR has noted that stock selection has been somewhat weaker than OBSR would have anticipated and the fund's return profile over recent years when compared to both the index and peers has been disappointing. As a result our conviction in the fund has moderated and OBSR believe that an AA Rating is more appropriate.
OBSR is aware of the appointment of Nick Little as co-manager of this fund but this has had no bearing on this Ratings decision.

The fund's A Rating was suspended in July 2010 following the departure of the manager, Peter Allwright. OBSR believe it is too early to build conviction in the fund at this stage given the changes in the team, but OBSR will continue to monitor it going forward.

The fund provides broad exposure to emerging market equities with a bias towards growth stocks that have the potential to deliver earnings surprises. While its risk profile is consistent with this, its performance relative to both the index and peers has been disappointing over the past three years. Furthermore, there have been team changes and this has impacted upon the Asian component of the portfolio. As a result, OBSR's conviction in the fund has moderated and OBSR believe that an A Rating is more appropriate.

The fund has failed to deliver to its performance objective for an extended period of time and while OBSR acknowledge that the long-term track record remains reasonable, the persistence of underperformance in recent years through a variety of market conditions has undermined OBSR's conviction to the extent that OBSR believe the fund no longer merits inclusion in our PruSelect Fund Range.

Whilst acknowledging that it has been a difficult period for fundamentally-driven bottom-up investors, the scale of the fund’s underperformance has caused OBSR’s conviction to wane. Consequently OBSR believe the fund no longer merits inclusion in the Service.

The fund's management will be passed to Cormac Weldon as lead manager, supported by Stephen Moore as deputy. Mr Holliman will be joining Polar Capital Management.

Mr Weldon is also the manager of Threadneedle American Select, which has an OBSR AA Rating and we will meet with him as soon as possible to discuss his plans for the Threadneedle American fund.