Investment governance

Real governance needs to be transparent so you can see what action we've taken and why. This should give you and your clients peace of mind that we're looking after their investments.

The Investment Advisory Committee (IAC) meet every quarter to review our Governed Range and funds. Highlights from the most recent meetings can be found below.

Details of previous IAC meetings can be found on the governance meeting updates archive.

Highlights:

  • There have been three tactical changes since the last meeting.
    • In April we found that having sharply rebounded in March, investor sentiment was more neutral. Central banks signalled a loosening of policy but, while there were early signs of stabilisation, global economic activity remained mixed. Chinese economic stimulus measures to boost activity appeared to be having an effect at the start of Q2, reducing the risk of a global recession in the short term. In light of this we slightly increased our moderate overweight in equities and allocation to short duration global high yield debt, reducing cash and increasing our underweight in UK government bonds. 

    • In May global growth data had broadly improved, remaining patchy and with neutral investor sentiment. Central banks continued to hold off on any policy adjustments until there was more clarity on the direction of the global economy. There was a risk of disappointment from the US-China trade talks and the impact of Chinese stimulus measures, which wouldn’t make a clear impact until the second half of the year however, we maintained a constructive growth view and added slightly to our overweight in equities and short duration global high yield debt. These trades were funded out of cash position in the portfolios.

    • June's tactical came after global stock markets retrenched through May as President Trump reignited trade wars with China with new tariffs on specific imports prompting retaliation and dashing hopes of a US-China trade deal in the short term. Economic data deteriorated slightly and antitrust scrutiny weighed on technology stocks. Central banks remained concerned about trade tensions and are closer to cutting interest rates, which should boost investor sentiment. We moved overweight in UK government bonds, given weaker inflation expectations, and retain a moderate overweight in equities, given positive global growth persisting; while reducing exposure to cash and commodities which are sensitive to slowing global trade.

    • We started the year overweight in equities, having bought through weakness in the last quarter of 2018 and benefitted from the sharp recovery in Q1. Having benefitted from the rebound in equity markets, we took some profits but remain overweight given the dovishness of major central banks and the signs that another mini cycle could drive stocks higher once better data feeds through. Within equities, we increased our position in Europe from underweight to neutral following underperformance and the European Central Bank has now committed to easing monetary policy which should boost European equities in due course. We also increased our overweight holding of US equities given relatively strong economic growth there. Against these increases, we remained broadly neutral in UK equities given risk that a ‘no-deal’ Brexit will hold back the economy, but equally a deal would bring an end to the unhelpful uncertainty. We have sharply reduced our position in Japan from overweight to underweight, as the economy there continues to struggle, and cut our overweight in emerging markets, taking profits, following strong performance as the US dollar weakened on expectations of lower interest rates.

In depth:

Highlights:

  • There have been three tactical changes since the last meeting.
    • In January, we believed that equity markets had priced in a recession prematurely given strong labour market data and low real interest rates. At the same time investment sentiment indicator remained oversold. In our view, the recovery in stock prices had further to run and as such we purchases equities, increasing our above benchmark allocation, funded out of commodities. We did this with the outlook to sell into rallies, as strong economic activity in 2019 would probably spur a resumption of US rate hikes, ending the current business cycle. 

    • In February, investor sentiment returned to normal levels, rebounding from very depressed readings recorded in Q4 2018. Having purchased in market weakness at the end of 2018, we reduced our equity exposure following rallies through January, taking profits. The proceeds of which were moved into government bonds, commodities and short duration global high yield debt. We looked to see evidence of Chinese stimulus measures and a pause in the US rate hikes boosting growth before moving more positive on equities again.

    • In March, investor sentiment seemed very optimistic. We continued to monitor Chinese stimulus measures and its effect on growth. As such, we continued to take profits from equity purchases made during market weakness early in the year and moved the proceeds into high yield bonds and cash.

    • We started the quarter firmly overweight in equities, having bought equities through weakness in the last quarter, and benefitted from the sharp recovery in sentiment as investors shifted again to a ‘risk on’ attitude this year. This was driven by more benign interest rate rhetoric from leading central banks, including the Federal Reserve (Fed), which indicated the next hike in US interest rates could be delayed until 2020; and more positive expectations of the US-China trade talks. Having benefitted from the rebound in equity markets, we scaled back our equity holdings and took profits, but remain moderately overweight as there are early signs of growth stabilising in China. The overall position as at end March, was overweight Equities, High Yield and Corporate Bonds; underweight Absolute Return Strategies (inc. cash), Gilts and Commodities. Neutral positions were maintained across Property and Index Linked Bonds. 

 

Highlights:

  • There have been three tactical changes since the last meeting.
    • In October, following market panic we began contrarian purchases of equities based on growth and risk outlooks. Further to this, we also increased commodity exposure but still remained under benchmark. These purchases were funded from government bonds and cash. Overweight positions across high yield bonds and corporate bonds were maintained.

    • In November, investor sentiment remained in panic territory and as such we added to equity exposure, funded out of cash and short duration high yield debt. We remained conscious that markets may retest recent lows however with a positive outlook for equities through 2019, albeit with increased volatility, we remained positive on equities. Neutral positions were maintained across property and index linked bonds.

    • In December, market volatility remained following US Federal Reserve signals of near neutral interest rate levels and US-China trade negotiations. With long term expectations of economic expansion across 2019, we continued to purchase equities, increasing our overweight position. As higher volatility is expected to remain, we expanded government bond allocation, funded from commodities, high yield corporate debt and cash.

    • In our view, stock markets were premature to price in a US recession, and the recovery in equity prices has further to run. Longer term, we remain positive on stocks. Within Equities, we have overweight’s in the US, Japan and emerging markets, with below benchmark allocations to the UK, continental Europe and Asia Pacific (excluding Japan). Within the overweight Fixed Income allocation, we continued to favour sterling investment grade corporate bonds and short duration global high yield debt versus Gilts. Commodity exposure has been moved further underweight, and UK commercial property exposure kept around neutral. 

In depth:

 

 

Highlights:

  • There have been 3 tactical changes since the last meeting.
    • In July, we continued to take profits on our equity positions reducing the overweight to its lowest level since 2012. We also reduced our overweight commodity allocation with the proceeds moved into government bonds and cash reducing these underweight positions. We were modestly overweight global equities, global high yield bonds and commodities. 

    • In August, we continued to reduce exposures to equities and commodities, bringing the latter into line with the benchmark. The proceeds were moved into government bonds, short dated high yield debt and cash. We were modestly overweight global equities and short dated global high yield bonds.

    • In September, we continued to de-risk portfolios by reducing exposures to equities and commodities, moving the latter allocation to an underweight relative to the benchmark. The proceeds were moved into government bonds, short dated high yield debt and cash.

    • Given the de-risking of portfolios that took place during the summer, TAA effects were relatively muted over the quarter. There were small positive contributions from overweighting Equities and underweighting Cash whilst an overweight stance in Commodities marginally detracted. Fixed Income and Property allocation effects were broadly neutral. Regional positioning within Equities was positive over the quarter with performance benefiting from overweighting overseas markets at the expense of underperforming UK equities. Across the overseas regions, overweight allocations to the US and Japan at the expense of continental Europe and Emerging Markets, all contributed positively to relative performance. Within Fixed Income, the overweight exposure to investment grade corporate debt offset a small positive contribution from underweighting conventional and index-linked UK government bonds which underperformed as Gilt yields rose over the period. 

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.