Investment Governance Meeting Summary – 27 February 2019

The Investment Advisory Committee (IAC) meet every quarter to review our Governed Range and funds.
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Strategic asset allocation

  • No SAA changes were recommended for the Governed Portfolios or GRIPs

Tactical asset allocation

  • Last change made on 6th December 2018.
  • We increased our overweight equity allocation with the expectation of global economic expansion to continue in 2019.
  • With volatility expected to remain high however, we also expanded the government bond allocation, funded from commodities, high yield corporate debt and cash. Neutral positions were retained across property and index linked bonds.
  • Long-term we remain positive on stocks and cautious on commodities and absolute return strategies including cash.

Fund review

  • 19 RLAM funds on watch
  • 2 Funds under review
  • 15 Matrix funds on watch

Governed Portfolios

Number of Governed Portfolios outperforming benchmark 1 year 0/9
3 years 2/9
5 years 5/9
Number of Governed Portfolios within target volatility ranges 8/9
  • Five of the Governed Portfolios are outperforming over five years.
  • Long term returns remain strong.
  • Contrarian purchases of equities across the fourth quarter of 2018 has led to a decrease in the number of portfolios outperforming their benchmark over 1,3 and 5 years however, positive equity market performance through the beginning of 2019 has since reversed this.

Governed Retirement Income Portfolios

Number of GRIPs outperforming benchmark 1 year 35
3 years 5/5
Since launch 5/5
Number of GRIPs within short-term risk measure 5/5
Number of GRIPS within long-term risk measure 5/5

All GRIPs were within the tolerances for their income and fund value risk metrics.

*For more information on the risk metrics please see leaflet Managing Risk in GRIPs.

Tactical strategy

 OverweightNeutralUnderweight
Equities down arrow    
Property   no change  
Commodities     down arrow
High Yield up arrow    
Gilts     up arrow
Index Linked   no change   
Corporate Bonds no change    
Absolute Return Strategies (including cash)     up arrow

Source: Tactical change – 6 December 2018, Royal London

  • Following market panic at the beginning of Q4, we began contrarian purchases of equities, funded from government bonds and cash, based on positive growth and risk outlooks. Investor sentiment remained in panic territory through November and as such our overweight equity allocation was expanded further. At the end of Q4 2018, we remained positive on equities, global high yield and corporate bonds. As volatility was expected to remain high we expanded the government bond allocation funded from commodities and cash.

The following funds were subject to action at the latest IAC meeting (27th February):

Rathbones Global Alpha

  • The fund finished behind the benchmark over Q4 2018,as well as 1, 3 and 5 years to the end of December 2018. Positive contributors over the year include the funds positioning in US equity markets with the Brown Advisory US Equity Growth Fund performing particularly strongly. Contribution from Europe was also positive over the year with the Jupiter European Income Fund being a particular highlight. However, both UK equity and Japan and Asia positioning detracted from performance over the year. Over the longer term, the Rathbone Investment Committee is already aware of the drag on performance from the fallout from the UK referendum, and the difficulties in reducing our small and midcap exposures in the UK within a fund of funds structure. This continues to affect both the 3 and 5 year numbers. Following a discussion with Rathbones over lack of look through and positioning they have proposed a change to the fund structure moving from a fund of funds approach to a mixture of directly held investments and a smaller number of OEICs. This was discussed as an individual agenda point at the latest IAC – Please see the full minutes for full details on this discussion.

Global Managed

  • This fund invests c. 80% in RLP unit linked funds which have underperformed their respective benchmarks. RLP American, European, Pacific and UK Equity have all experienced underperformance across 1, 3 and 5 years. A large portion of the underlying OEICs have in fact outperformed their benchmarks over the 1, 3 and 5 year periods, however the holdings in these funds was too small to negate the underperformance of the other funds. Stock selection has largely been attributed to the underperformance with UK equity the largest detractor, which we see in the UK Opportunities fund. Overseas equity can also be attributed to this underperformance, with exposure to North America the largest detractor. This exposure is through the US Tracker fund and therefore timing differences and cash flow adjustments need to be considered. A deep dive on Global Managed was discussed at the latest IAC as a standalone agenda point – to see the full details of this analysis please see the full minutes.

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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.