Investment Governance Meeting Summary – 13 June 2017

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Strategic asset allocation

  • New SAA positions for the GRIPs were recommended this quarter.
  • The proposed GRIPs aim to be more efficient and will remove portfolio concentration by spreading risk across a greater range of asset classes to provide diversification benefits.
  • Further details of the proposed risk metrics were requested by the IAC.

Tactical asset allocation

  • There have been three tactical asset allocation changes since the last IAC meeting in February. The most recent change took place on 11 May 2017.
  • Within the Governed Portfolios, we maintained the small overweight in equities and used this change to add positions in global high yield while slightly trimming the commodity exposure.
  • Within the GRIPs, we reduced our overweight position in equities and increased exposure to global high yields and gilts.
  • The last change was based on global growth starting to peak and volatility lurking on the horizon.

Fund review

  • 9 funds under review
  • 61 funds on watch

Governed Portfolios

Number of Governed Portfolios outperforming benchmark 1 year 3/9
3 years 5/9
Since launch 7/9
Number of Governed Portfolios within target volatility ranges 9/9
  • Absolute performance for the Governed Portfolios remains strong over 12 months.
  • GP3, GP6 and GP9 are outperforming their benchmark over 1 year.
  • GP4 and GP7 continue to underperform since launch
  • RLP Global Managed continues to underperform and this is the primary performance detractor for the Governed Portfolios.
  • All nine Governed Portfolios remain within their projected target volatility ranges.  

Governed Retirement Income Portfolios

Number of GRIPs outperforming benchmark 1 year 5/5
3 years 5/5
Since launch 5/5
Number of GRIPs within short-term risk measure 4/5
Number of GRIPS within long-term risk measure 0/5
  • All GRIPs are outperforming their benchmarks over 1 year, 3 years and since launch.
  • The GRIPs are benefiting from the outperformance provided by the RLP Sterling Extra Yield Bond fund, offsetting the underperformance of RLP Global Managed.
  • Similarly to previous quarters, the long term measure for all GRIPs is triggering red, suggesting that the portfolios are not taking enough risk.
  • The review of the GRIP SAAs continues with the proposal presented to the IAC this quarter.

 

 OverweightNeutralUnderweight
Equities    
Property    
Commodities    
High Yield      
Gilts    
Index Linked    
Corporate Bonds    
Absolute Return Strategies
(including cash)
     
  • TAA effects contributed positively over Q1 as performance continued to benefit from overweighting outperforming equities funded out of Fixed Income. UK Property, Commodities, and Cash & Absolute Return allocations were all maintained at or around benchmark levels during the period.
  • Regional positioning within equities detracted over Q1 with the overweight stance in Japan the largest factor. However, there was a positive contribution from the UK equity line up following the relative performance of small and midcaps stocks versus large caps returned to positive territory following last year’s Brexit-related underperformance.
  • Within Fixed income, the preference for corporate bonds over government debt continued to provide a boost to relative returns as credit spreads narrowed further over the period. This offset a negative effect from underweighting index-linked Gilts, which are now discounting UK structural inflation well above 3% over the medium and long term.

 

The following funds will be subject to action prior to the next IAC meeting:

  • RLP UK Equity Core Plus (Schroder Core UK Equity)
  • RLP US Specialist (JPM US)

The following funds are under review:

  • RLP Core Plus (Fidelity European Blended)
  • RLP Global Blend Core Plus (Rathbone Global Alpha)
  • RLP Specialist (Investec UK Smaller Companies)
  • RLP UK Equity Core Plus (Close TEAMS UK Equities 2%)
  • RLP UK Mid Cap Specialist ( Franklin UK Mid Cap)
  • RLP/Blackrock Aquila Global Equity Index (60:40)

The following funds will be replaced:

  • RLP US Core Plus (Fidelity American)
  • RLP Europe Specialist (Neptune European Opportunities)

There are currently 61 funds on watch. This consists of:

  • 46 externally managed funds
  • 15 Royal London managed funds
Last updated: 28 Jun 2017

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