FOR ADVISERS ONLY
Investment Governance Meeting Summary – 29 August 2017
Read the latest IAC minutes and fund review.
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Strategic asset allocation
- No SAA changes were recommended this quarter.
- An update was provided on the proposed GRIP SAA changes. The proposed allocations are subject to approval within Royal London’s governance framework.
- Revised risk metrics for the GRIPs were presented for consideration. The IAC are supportive of the proposal and look forward to seeing them being implemented.
Tactical asset allocation
- Last change made on 10 August 2017.
- Trevor has marginally increased the portfolio's exposure to high yield bonds as a lower risk way of gaining corporate exposure with some income, as summer months tend to be more volatile.
- We have maintained a small overweight position in equities and a neutral allocation to commodities, where potential for weaker economic activity in China increases the downside risk. Property exposure continues to be kept in line with the benchmark.
Fund review
- 2 funds under review
- 53 funds on watch
Governed Portfolios
| Number of Governed Portfolios outperforming benchmark | 1 year | 9/9 |
|---|---|---|
| 3 years | 9/9 | |
| Since launch | 7/9 | |
| Number of Governed Portfolios within target volatility ranges | 9/9 | |
- Absolute performance for both the Governed Portfolios and the GRIPs continue to remain strong over 12 months. All nine Governed Portfolios are now back outperforming their benchmark over one year and only GP4 and GP7 are under since launch.
- The uptake in short-term performance has been driven by improved returns from RLP Global Managed. This is now outperforming the benchmark over one year due to strong relative performance from the European and active UK components.
- 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 | |
The GRIPs are also outperforming over one and three years benefitting from very strong performance from RLP Sterling Extra Yield Bond fund over 12 months. Similarly to previous quarters, the long term measure for all GRIPs is triggering red, suggesting that the portfolios are not taking enough risk. Investigations continue in reviewing the GRIP SAA positions.
Tactical strategy
| Overweight | Neutral | Underweight | |
|---|---|---|---|
| Equities |  |
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| Property | |
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| Commodities | |
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| High Yield |  |
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| Gilts | |
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| Index Linked | |
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| Corporate Bonds | |
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| Absolute Return Strategies (including cash) |  |
- TAA effects contributed positively over Q2 as performance continued to benefit from the overweight positioning in equities, funded out of fixed income, whilst a marginal overweight position in commodities detracted. Allocations to cash & absolute return and UK property were maintained at or around benchmark levels during the period.
- Within equities, an overweight exposure to small and mid-cap with the UK allocation contributed positively as well as a regional overseas preference for Japan and Asia Pacific ex-Japan at the expense of an underperforming US market.
- Across fixed income, the preference for corporate bonds over government debt continued to boost relative performance as credit spreads narrowed further over the period. The overweight positioning in global high yield debt was also beneficial, with the asset class outperforming investment grade debt as investors continued to seek out additional income.
The following funds will be subject to action prior to the next IAC meeting:
- RLP US Specialist (JPM US)
We believe that there are more compelling solutions in this area and the IAC approved the proposal to replace this fund and identify a more suitable replacement at the next IAC meeting.
The following funds are under review:
- RLP UK Small Cap Specialist (Investec UK Smaller Companies)
- RLP UK Core Plus (Schroder Core UK Equity)
- RLP UK Specialist (Artemis UK Special Situations)
- RLP Europe Core Plus (Fidelity European Blended)
- RLP US Core Plus (Fidelity American)
- RLP Japan Core Plus (Schroder Tokyo)
- RLP Japan Specialist (Invesco Perpetual Japan)
- RLP Emerging Markets Specialist (First State Global Emerging Markets Leaders)
The following funds will be replaced:
- RLP US Core Plus (Fidelity American)
- RLP Europe Specialist (Neptune European Opportunities)
There are currently 42 funds on watch (performance is flagged to the IAC). This consists of:
- 39 externally managed funds
- 3 Royal London managed funds
Last updated: 23 Oct 2017