FOR ADVISERS ONLY
Investment Governance Meeting Summary – 7 June 2021
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Strategic Asset Allocation
There has been a strategic asset allocation change for the Governed Portfolios: an increase in our allocation to high yield bonds and a reduction in property. Furthermore within equities exposure to global developed and emerging market equities has increased out of UK equities.
There has been a strategic asset allocation change for Governed Retirement Income Portfolios 1 and 2: an increase in equities and high yield bonds and a reduction in gilts, index linked gilts and corporate bonds.
Furthermore within equities exposure to global developed and emerging market equities has increased out of UK equities.
Tactical Asset Allocation
Last change made on 11 March 2021.
The success of vaccination programmes and declining Covid-19 case numbers in the US and Europe fuelled expectations of a strong economic recovery this year, driving positive global equity returns.
Meanwhile, anticipation of significant US fiscal stimulus raised concerns about inflation causing global bond yields to rise. Due to short-term market volatility we have reduced our overweight exposures to equities, commodities, corporate bonds and global high yield bonds.
We also moved further underweight in gilts. This benefited our cash allocation, which has moved less underweight. The underweight exposure to commercial property remains unchanged.
Governed Portfolios
| Number of Governed Portfolios outperforming benchmark | 1 year | 1/9 |
|---|---|---|
| 3 years | 9/9 | |
| Since launch | 9/9 | |
| Number of Governed Portfolios within target volatility ranges | 9/9 | |
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All the Governed Portfolios were within their 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 target range – Income Risk Metric | 5/5 | |
| Number of GRIPs within target range – Fund Risk Metric | 5/5 | |
All portfolios remain within their target ranges for the income risk metric, with GRIP 2 being amber as it nears it’s upper limit. Sustainability scores have increased from last quarter as annuity rates increased slightly and the expected future returns across most asset classes have increased.
The fund risk metrics for all GRIPs are within tolerance, with GRIP 2 flagging amber. This is a significant improvement from last quarter.
Moody’s Analytics updated the inflation metric embedded within the real return metric for the GRIPs from RPI to CPI this quarter. Generally this has improved expected real outcomes although this has been offset by the significant increase in inflation expectations and the slightly higher risk profile for GRIP1 and GRIP 2 following the SAA changes.
| 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) |  |
The success of vaccination programmes and declining Covid-19 case numbers in the US and Europe fuelled expectations of a strong economic recovery this year, driving positive global equity returns. Meanwhile, anticipation of significant US fiscal stimulus raised concerns about inflation causing global bond yields to rise.
Due to short-term market volatility we have reduced our overweight exposures to equities, commodities, corporate bonds and global high yield bonds. We also moved further underweight in gilts. This benefited our cash allocation, which has moved less underweight. The underweight exposure to commercial property remains unchanged.