Niall Aitken, Investment Actuary, explains how we manage risk in our Governed Retirement Income Portfolios (GRIPs).
Market sentiment improved in April as the US and China stepped back from previous heated rhetoric on trade and tariffs, and as slowing growth in some economies undermined expectations for tighter monetary policy. UK and eurozone economic performance weakened marginally, while the US economy has shown more resilience. US equities outperformed bonds, after lagging behind for two months. On a regional basis, returns were positive across equity markets - the UK was the strongest performer in sterling terms, followed at some distance by continental Europe, Asia (excluding Japan), Japan and the US.
Government bond markets were generally weaker in April. Yields rose sharply in the first half of the month, before weaker GDP figures in the US, Europe and UK helped to push yields lower once more. Among core markets, the UK and US underperformed, while Japan was strongest.
In the UK the benchmark 10-year gilt yield rose 7 basis points (bps) in April, with the asset class (all maturities) posting a return of -1.0% and underperforming sterling investment grade corporate bonds, which returned -0.07%. Absolute returns were positive for about half of sterling credit sectors and negative elsewhere.
Sterling weakened for a second month in three, while remaining above levels recorded earlier in 2018. Headline consumer price inflation fell to 2.5% (annual basis), below the rate of wage growth, restoring pay growth in real terms after months of wages lagging behind inflation, sapping consumer spending. The government lost several votes in the House of Lords on amendments to its flagship Brexit legislation. While Brexit talks progressed with March’s agreement on the transition phase after the UK leaves the EU, we believe that business investment will be constrained by uncertainty. Against this background, we expect interest rates to remain at low levels, although we anticipate two 0.25% increases in the BoE’s base rate in 2018.
Over 12 months to end April 2018 the Governed Portfolios have delivered between 1% and 7%. All portfolios have outperformed their benchmarks over one and five years. Over three years, all of the portfolios are outperforming benchmark except for Governed Portfolio 1 which returned 0.03% below benchmark and Governed Portfolio 7 which returned 0.09% below benchmark on an annualised return basis.
Over 12 months to end April 2018 the GRIPs delivered between 1% and 6% growth
All five GRIPs have outperformed their benchmark over one, three and five years and since launch. GRIP4 and GRIP5 have returned 10% above benchmark since launch. You can view our monthly GP and GRIP performance and factsheets by visiting our Fund information page.
All figures are as at 30 April 2018. Source: Lipper as at 30.04.18, Royal London, as at 30.04.18. All performance figures, including the figures shown for the growth in the benchmarks, have been calculated net of the 1% annual management charge.
Remember, past performance is not a guide to the future. Prices can fall as well as rise meaning you may not get back the full amount of capital originally invested. Investment returns may fluctuate and are not guaranteed.