Investment Governance Meeting Summary - 3 June 2020

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

Strategic Asset Allocation:

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

Tactical Asset Allocation:

Last change made on 12th March 2020.

Stock markets have declined sharply in reaction to the coronavirus outbreak. We have reduced equity exposure in view of further downside risk to the world economy, but we retain a small overweight as we see this shock as ultimately temporary - investor sentiment is extremely depressed and valuations are more attractive.

We also moved underweight commodities. We added to government bonds and commercial property, and increased corporate and global high yield bonds at wider spreads as we expect them to offer resilience. When recovery comes, we are likely to add to equities again because of the additional stimulus in the system.

Fund Review:

  • 2 RLAM funds on watch
  • 2 Funds under review
  • 2 Matrix funds on watch (due to underperformance)

Governed Portfolios

Number of Governed Portfolios outperforming benchmark 1 year 1/9
3 years 0/9
Since launch  5/9
Number of Governed Portfolios within target volatility ranges 9/9
  • All the Governed Portfolios were within their target volatility ranges.

Governed Retirement Income Portfolios

Number of GRIPs outperforming benchmark 1 year 0/5
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 2/5
  • All GRIPs remain within their target ranges for the income risk metric. Sustainability scores for the lower risk GRIPs have remained largely unchanged however for the higher risk portfolios there has been a slight decline in sustainability.

  • For the fund risk metrics GRIPs 3,4 and 5 have moved above the 10% tolerance of target and are now flagging red. Increases in the Max 1-year loss figures are being driven by increases in short term volatility for risk assets within the model. UK equity 1-year volatility has increased from 15.6% to 26.8%, while Global Equity is 22.4% up from 16.1% last quarter. Please see the IAC minutes for the committee’s comments on the GRIPs risk metrics.

Tactical Strategy:

 OverweightNeutralUnderweight
Equities    
Property    
Commodities      
High Yield    
Gilts    
Index Linked    
Corporate Bonds    
Absolute Return Strategies (including cash)      

Stock markets have declined sharply in reaction to the coronavirus outbreak. We have reduced equity exposure in view of further downside risk to the world economy, but we retain a small overweight as we see this shock as ultimately temporary - investor sentiment is extremely depressed and valuations are more attractive.

We also moved underweight commodities. We added to government bonds and commercial property, and increased corporate and global high yield bonds at wider spreads as we expect them to offer resilience. When recovery comes, we are likely to add to equities again because of the additional stimulus in the system.

The following funds were subject to action at the latest IAC meeting:

Invesco UK Growth

Invesco UK Growth sits in the UK Specialist category of the matrix. The proposal recommended that the mandate for this fund be replaced with the Fidelity UK Opportunities fund. This is based on in-house research, external research and analysis provided by Morningstar. It was noted that the analysis now also considers ESG scoring from Morningstar based on quant data and the committee were happy to see this included going forward.

The Fidelity fund was proposed due to a stronger performance record, lower costs and a higher ESG score. With this in mind; the committee were happy to support Fidelity UK Opportunities as the replacement for Invesco UK Growth.

Invesco Global Equity

The fund is now being managed by a new manager who has his own investment process. RLI are comfortable to continue to hold the fund on a probationary period until Q3. The fund retains a 3Q rating of 3.
The committee raised concerns over the incoming fund manager, their ability to turn performance around and if so, how will the strategy differ from the existing mandate. RLI acknowledged these concerns and agreed initial analysis for replacements will be prepared so if the decision is made to replace Invesco Global Equity, action can be taken quickly in the best interest of the customer.

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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.