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Strategic Asset Allocation changes to our Governed Range

Published  24 April 2023
   5 min read

We're making changes to the strategic asset allocation (SAA) of our Governed Portfolios and Governed Retirement Income Portfolios to help improve risk-adjusted returns and income sustainability for your clients.

The SAA of the Governed Range represents our long-term view of an efficient asset mix for each portfolio. 

As part of the latest review, we’ve increased the frequency of our SAA reviews, evolved the fixed income allocation for each portfolio and committed to changing the Global Equity split in the coming weeks.     

Frequency of SAA reviews

The Investment Advisory Committee (IAC) monitor how the portfolios are delivering against their risk objectives every quarter, as well as a formal review every three years.

Going forward, the IAC will also carry out a detailed review every 12 months.

Quarterly review Annual review Triennial review
Looks at the efficiency of each portfolio and considers how the current SAA positions are going to meet their risk and return objectives. Looks at the overall asset allocation, regional split and bond duration of the portfolio, as well as any new funds which can be added to existing strategies. Ensures that portfolios remain appropriate for their long-term objectives which are designed to optimise returns within their risk framework.

Fixed income allocation

To help improve risk-adjusted returns for your clients, we’ve made some changes to the fixed income allocation within each Governed Portfolio (GP) and Governed Retirement Income Portfolio (GRIP).

What’s changed?

  • We’ve simplified our duration approach to avoid sector biases by moving away from rigid 5/10/15 year funds and using “all maturities” and short dated funds. Relaxing the duration constraints across the portfolios means we can also align the asset allocation of three pairs of portfolios with the same risk target. This also plays into one of Royal London Asset Management’s (RLAM) key strengths by allowing more flexibility to how we manage bonds.
  • We’ve reduced our exposure to index-linked gilts, but will maintain a small allocation to help improve portfolio resilience.
  • We’ve increased global diversification by allocating 20% of fixed income exposure to global bonds.
  • There are small changes to the equity and property allocations in some of the GPs to improve return efficiency and small changes to the equity, high yield and cash allocations in some of the GRIPs to help improve income sustainability.

Global Equity allocation

We have also made some changes to the global equity allocation within each Governed Portfolio (GP) and Governed Retirement Income Portfolio (GRIP).

What’s changed?

  • The benchmark will change from 35% FTSE All Share/55% FTSE World/10% MSCI Emerging Markets ESG Leaders Index to 25% FTSE All Share/65% FTSE World/10% MSCI Emerging Markets ESG Leaders Index.
  • This will take place over the coming weeks to ensure we trade as efficiently as possible due to the scale of the change. We will fully move to the new positions by the end of May.

New SAAs for GPs and GRIPs

The new SAAs are shown in the tables below.  

GPs – new SAA

  Cautious Balanced Adventurous
  GP1 GP2 GP3 GP4 GP5 GP6 GP7 GP8 GP9
Equity 57.50% 42.50% 12.50% 70.00% 57.50% 32.50% 80.00% 70.00% 42.50%
Property 10.00% 10.00% 5.00% 12.50% 10.00% 7.50% 12.50% 12.50% 10.00%
Commodities 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Global High Yield Bonds 5.00% 5.00% 7.50% 2.50% 5.00% 5.00% 2.50% 2.50% 5.00%
UK Corporate Bonds 3.25% 5.00% 9.00% 1.50% 3.25% 6.25% 0.00% 1.50% 5.00%
Global Corporate Bonds 1.75% 2.50% 3.50% 0.50% 1.75% 2.50% 0.00% 0.50% 2.50%
Short Duration UK Corporate Bonds 2.50% 7.50% 12.50% 0.00% 2.50% 10.00% 0.00% 0.00% 7.50%
UK Index Linked 2.50% 2.50% 2.50% 1.00% 2.50% 2.50% 0.00% 1.00% 2.50%
Short Duration UK Index Linked 0.00% 0.75% 2.25% 0.00% 0.00% 1.50% 0.00% 0.00% 0.75%
Short Duration Global Index Linked 0.00% 1.75% 5.25% 0.00% 0.00% 3.50% 0.00% 0.00% 1.75%
UK Government Bonds 5.75% 5.75% 9.50% 1.50% 5.75% 6.75% 0.00% 1.50% 5.75%
Global Government Bonds 1.75% 1.75% 3.00% 0.50% 1.75% 2.00% 0.00% 0.50% 1.75%
Short Duration UK Government Bonds 0.00% 2.50% 10.00% 0.00% 0.00% 5.00% 0.00% 0.00% 2.50%
Absolute Return Strategies (including Cash) 5.00% 7.50% 12.50% 5.00% 5.00% 10.00% 0.00% 5.00% 7.50%

 

GRIPs – new SAA

  GRIP 1 GRIP 2 GRIP 3 GRIP 4 GRIP 5
Equity 12.50% 22.50% 30.00% 40.00% 50.00%
Property 5.00% 7.50% 7.50% 10.00% 10.00%
Commodities 5.00% 5.00% 5.00% 5.00% 5.00%
Global High Yield Bonds 5.00% 5.00% 5.00% 6.25% 6.25%
UK High Yield Bonds 5.00% 5.00% 5.00% 6.25% 6.25%
UK Corporate Bonds 14.00% 13.00% 10.00% 7.25% 4.00%
Global Corporate Bonds 4.00% 3.50% 3.25% 2.00% 2.00%
Short Duration UK Corporate Bonds 4.50% 4.50% 3.00% 2.00% 1.50%
UK Index Linked 5.00% 5.00% 5.00% 3.75% 2.50%
Short Duration UK Index Linked 1.50% 0.75% 0.75% 0.00% 0.00%
Short Duration Global Index Linked 3.50% 1.75% 1.75% 0.00% 0.00%
UK Government Bonds 10.00% 10.00% 9.75% 5.00% 4.00%
Global Government Bonds 4.00% 3.75% 2.50% 2.50% 1.00%
Short Duration UK Government Bonds 11.00% 2.75% 1.50% 0.00% 0.00%
Absolute Return Strategies (including Cash) 10.00% 10.00% 10.00% 10.00% 7.50%

Fund launches and changes

As part of the latest review, we’ve also launched five new funds and renamed two funds for consistency. These funds will replace the current 15, 10 and 5 year bond funds when you or your clients view the GP or GRIP breakdown on our app or online service.

New funds (click for factsheet)

Fund name changes

Old fund name New fund name
RLP International Government Bond RLP Global Government Bond
RLP Index Linked RLP UK Index Linked